As we all know, residents of Canada are required to file income tax return to CRA according to regulatory requirements. But as a non-resident of Canada, you are required to pay income tax on income received from Canada depending on the types of income. We will focus on “rental income” tax requirements for non-resident for non-resident of Canada.
CRA provided three types of filing and tax payment methods regarding rental income tax.
METHOD ONE: WITHHOLDING NON-RESIDENT TAX OF 25% ON THE GROSS RENTAL INCOME PAID OR CREDITED TO THE NON-RESIDENT TO BE CONSIDERED AS FINAL TAX OBLIGATION.
Canada requires non-residents of Canada to pay the tax on or before the 15th day of the month after the month the rental income is paid or credited to you when the property has been rented. This obligation of the payer is either the landlord or the landlord’s representative.
The landlord’s representative must be a Canadian resident, who can be the landlord’s relative, friend, realtor, or can be the tenant. If a property is managed by a property management firm, the firm will generally provide services to withhold tax of 25% to CRA on a monthly basis. Representatives are required to submit a NR4 return to the CRA on or before March 31st of the following year.
METHOD TWO: WITHHOLDING NON-RESIDENT TAX OF 25% ON THE GROSS RENTAL INCOME PAID OR CREDITED TO THE NON-RESIDENT, TAX YEAR FILING IS VOLUNTARY.
In addition to withholding tax mentioned in method one, file tax at the year end on a voluntary basis.
Since you have allowable expenses associated to rental housing each year and this can be deducted. Deductible expenses can be categorized as below: rental advertising expense, housing insurance expense, management expense, bank mortgage fee, property tax, repair and maintenance expense (including water, gas, and electricity), accounting fee, etc. Be sure to keep all the associated receipts. The overpaid withholding tax calculated after filing the tax return can be refunded.
There is time limit to doing anything, the CRA stipulates that within two years from December 31 of the tax year, you can return the tax related to the overpaid rental income by declaring the Canadian non-resident tax.
METHOD THREE: PAY 25% WITHHOLDING TAX ON NET INCOME FROM RENTAL THROUGH SUBMISSION OF NR6 AND DECLARE SECTION 216 OF TAX FORM.
The withholding tax can be paid at 25% of the net rental income if the NR6 application must be submitted before January 1 at the beginning of each year, or before the first rent is received, and approved by the CRA.
If you have applied and received approval from CRA for NR6, you must declare Section 216 tax form before the annual filing deadline which is June 30, regardless of tax owing or tax obligation. If there is tax owing outstanding, it needs to be paid in advance on or before April 30th. If the declaration is not made on time, the tax bureau will calculate the withholding tax based on the gross income and send the assessment tax return.
The agent acts as a guarantor, guaranteeing and assuming the tax liability of the non-resident landlord. If the 25% is not reserved in time, the CRA has the right to directly recover the money from the agent and request interest payments. If the non-resident landlord fails to file a tax return, the CRA can also pursue it directly from the agent, with additional interest and penalties. The agent must also remember to file the NR4 on time, otherwise there will be penalties and interests.
IS IT RISKY IF I DON’T DECLARE THE LEASE?
In recent years, the Canada Revenue Agency has also stepped up with the big data. A large amount of business data may be passed through various channels of the CRA. The best option is to obey the law in Canada to avoid unnecessary tax troubles when selling a house in the future.
The treatment of non-resident rental income may result in a CRA audit and penalties if the NR6, NR4 and S216 income tax returns are not filed properly.
The service content of non-resident rental income provided by our company includes:
- Apply for a tax number.
- To assist the withholding tax remittance bureau for each installment.
- NR4 declaration: must be declared before the end of March each year.
- NR6 application: If the customer needs to pay tax in advance according to the net profit, we will assist the customer to fill in the NR6 application before the end of each year.
- Declare Section 216 tax forms and provide annual tax declaration services for rental income.
Please call us at 604-232-1070.