Tax requirements for non-residents of Canada earning rental income

Non-residents of Canada who earn certain types of Canadian source income may be taxed on this income in Canada. Those that earn income from rental properties are taxed on this income in a very specific manner. Some of basic steps to know for non-residents earning rental income from Canada are:

  1. Once the property is purchased find a good Canadian property manager to manage the rental property.
  2. Prepare or have your accountant prepare your NR6 forms based on estimates for the current year. Remember that NR6 forms are due the later of December 31th of the previous year and before the first rental payment is received.
  3. A withholding agent (usually property manager) needs to be assigned to the property. The agent must be a Canadian resident.
  4. Have the agent withhold 25% of net rental income pursuant to the NR6 calculations each month.
  5. Prepare and submit form NR4 by March 31 of the following year.
  6. Prepare and file Canadian non-resident income tax returns electing to tax net rental income under section 216 of the Canadian income tax act.
  7. Once your income tax return is assessed and you receive your non-resident tax assessment ensure to review it for any changes CRA may have made.
  8. Repeat steps 2 to 7 each year until the property is sold or you become a full time tax resident of Canada.

The non-resident rental income procedures are mandatory to perform and failure to properly file forms NR6, NR4 and section 216 income tax returns can lead to significant penalties and hassle with CRA. It’s always wise to consult a cross border tax specialist to aid in these types of tax filings.