Bookkeeping and Accounting Services for Non-Residents
The Canadian government requires non-residents to pay tax on their Canadian rental incomes. Our team is experienced in handling the many tax complexities associated with being a non-resident collecting income from a property in Canada. This might seem complicated, but our dedicated team will make the process easy and leave you feeling confident about your options and your investment.
While you are required by the CRA to declare the income you earned from your Canadian real estate investments, certain options can minimize the impact on your ROI.
Your options:
Option 1, the default approach: remitting 25 percent of gross rent
The payer of the rent, such as a tenant or property manager (if the property manager is collecting the rent and then submitting to the owner), must withhold a 25 percent non-resident tax on the gross rent paid or credited to you. At the end of the calendar year, the payer must supply you with two copies of an NR4 slip showing the gross amount of rent paid or credited to you during the year and the amount of non-resident tax withheld and remitted to the CRA. Generally, the non-resident tax withheld is considered your final tax obligation to Canada on the rental income. However, you are given two years from the end of the year in which to file a Section 216 return and be reimbursed for any overpayment of tax.
Option 2: remitting 25 percent of net rent
Remitting 25 percent of the gross rent can be financially challenging. Option 2 involves appointing a Canadian resident to be your Canadian agent for non-resident tax-withholding purposes. This can be anyone who lives in Canada, but it is most often the property manager.
To have non-resident tax withheld on your net rental income (or revenue minus expenses), you and your agent must complete form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real Property, and submit it to the CRA for approval. Use mortgage interest, property taxes, insurance, condominium fees, property management fees, utilities (assuming the tenant isn’t paying them), and general repairs and maintenance to calculate your expenses.
The form NR6 must be filed for every calendar year or before the first rent payment is due. For example, if you have a tenant moving in on March 1, the NR6 must be filed before March 1 for the period of March 1 to December 31. Going forward, an NR6 must be filed before January 1 of each year for the period of January 1 to December 31.
When completing the expense portion on the NR6, base your calculations on what you anticipate your expenses to be in the coming year. This is usually a best-guess scenario, and you will you know if your estimate was close to what you claimed at the end of the year. If you discover that you haven’t paid enough tax, you have until April 30 of the following year to remit it to the CRA without incurring interest. However, keep in mind that you still have until June 30 of the following year to file your Section 216 without incurring any penalties. Should you owe money to the CRA, you will incur interest starting May 1. For example, if you are filing your taxes for 2023, you have until April 30, 2024, to pay any balance owing without incurring interest, and until June 30, 2024, to file your 2023 Section 216 without incurring a penalty and interest for filing.
Still have questions or feel unsure? Don’t worry. No concern is too small, and there are no stupid questions. Accotax is here to make the process easy for you; reach out to us and we can schedule a meeting.
