Are there withholding taxes on my rental income?
Yes. Any person remitting rents to a non-resident is required to withhold and remit to the Canada Revenue Agency ("CRA") 25% of the gross rents paid. Most tenants, however, are unaware of this obligation. Accordingly, many non-residents with rental property in Canada remit 25% of their gross rental income to the CRA on their own account.
Do I need to file a tax return?
No. However, you can file a Section 216 elective return to get some of the 25% withholding taxes refunded (see below). You only have 2 years (and in some cases 6 months) from the year-end to file the Section 216 elective return. If you don't file then the 25% withholding tax is a final payment of tax in Canada.
How do I get the tax withheld back?
The 25% withheld on the gross rental revenue is the final tax obligation. However, a section 216 tax return can be filed to pay tax on the net rental income (gross sales – rental expenses = net rental income) of the rental property at Canada's marginal tax rates. This generally allows a significant portion of the taxes withheld to be refunded.
What types of expenses are related to my rental property?
Typical rental expenses include advertising, insurance, interest, legal & accounting costs, management & strata fees, maintenance and repairs, property taxes, utilities, and any relevant travel costs related to maintaining the rental property. These must all be expenses incurred for the purpose of making money with your rental property and documented by receipts.
I bought a property in Canada and I am going to rent it, but first I'm going to renovate it. Are the renovation costs important or just the rental costs?
Yes, the renovation costs are important to track. Though not deductible if incurred prior to renting, these costs will increase the tax-adjusted cost base of the property. This is important when you sell the property, and properly tracking these costs could help reduce your taxes upon sale.
I have rental property and I have been filing my section 216 tax returns, but now I'm going to sell the property. Is there anything I need to know?
Yes. When you sell the property you are required to notify the CRA of the sale within 10 days of closing or face a $2,500 penalty. To learn more, read our Q&A for Non-Resident Sale of Canadian Property.
I have had a rental property for several years, and I just learned about the non-resident withholding tax requirements. What should I do?
You should immediately file all Section 216 elective tax returns under CRA's section 216 Late-filing Policy.
What if I don't bother with the above?
When you sell the property the CRA will request the 25% of all gross rents to be paid before issuing the certificate of compliance. To learn more about your obligations when you sell your property, read Non-Resident Sale of Canadian Property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
