Holding Canadian Real Estate as a Non-Resident? You NEED to Read This!

By George Dube

We receive calls from all over the world, and from our clients in Canada who JV with non-residents, regarding investors who own or want to sell Canadian real estate. They need help to ensure they stay onside with Canada Revenue Agency. 

So, here is what you need to know before you buy Canadian Real Estate as a non-resident!

• Withholding taxes

  If a non-resident holds Canadian rental real estate, a 25% Canadian withholding tax is generally applied on the gross rents. The person paying the rents to the non-resident must remit this tax to the Canada Revenue Agency (CRA) on or before the 15th day of the month following the month the rental income is paid or credited to the non-resident. (The non-resident normally has an agent in Canada to collect the rents and remit the withholding tax, such as a property manager.) If a resident of Canada, for whatever reason, happens to have missed taxes then they may require to access old T4s. Sometimes this is difficult if they have become lost, they’ve changed employers, or their old employer has gone out of business. Luckily, there are tips on getting old T4s available online for those in need of them.

• Annual filings for CRA

  Annually, the non-resident can file a Section 216 Return. This is basically a personal income tax return, but used to report only the net rental income relating to the Canadian rental properties. The net rental income is subject to tax at the graduated rates applicable to Canadian residents. However, the tax owing is reduced by the previously remitted 25% withholding tax on the gross rents. Excess withholding tax is refunded through this return. Filing such a return is optional and non-residents usually do this only when they are getting a refund.

• Gross rents vs. net rents
  
  The person responsible for remitting the withholding tax must file an annual NR4 Return. This return identifies the amounts withheld from the gross rents and remitted to the CRA.

  Alternatively, the non-resident can elect to have tax withheld on the net rental amount instead of on the gross rent. To do this, the non-resident and their Canadian agent files an NR6 Form. Generally speaking, the non-resident prepares an estimate of the expected gross rental income, expenses and net income for each rental property. This estimate is included with the NR6 Form and filed with the CRA.

  If the CRA approves the NR6 Form, the Canadian agent collecting the rents on behalf of the non-resident can then withhold tax on the net rental income of each property identified in the calculation instead of on the gross income. Until the form is filed and accepted by the CRA, the agent will be required to withhold tax on the gross rents. Under this alternative the non-resident must file a Section 216 Return within six months of the calendar year-end (i. e. by June 30).

• Forms to Know
  • NR4 ? Statement of Amounts Paid or Credited to Non-Residents of Canada
  • NR6 ? Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent From Real Property or Receiving a Timber Royalt

George E. Dube, CPA, CA, LPA is a veteran real estate investor and accountant (CPA). He has spoken, written various articles, and co-authored two books on real estate accounting. Reach George at georgedube@dubecuttini.com.