About Jiayue Tax & Financial Planning
Jiayue Tax Planning is jointly provided by Michael Gao CPA Inc.
and its affiliated firm, Citistar Wealth Management.
Together we use our respective professional expertise
to serve every client.
With our professionalism, we help power your success.
Introduction:
As one of the most livable countries in the world, Canada attracts more and more
investors to its real estate market. Wherever there is investment, there will be
tax issues. For properties held by non-residents, renting them out
is also often necessary to avoid BC’s Empty Homes Tax and
Speculation Tax.
Today we’ll first look at how non-residents report rental income from Canadian real estate.
Under Canadian tax law, as long as you have income sourced in Canada,
you must pay Canadian income tax, no matter who you are.
Tax residents of Canada must report their worldwide assets and income.
Non-residents only need to report and pay tax on income earned in Canada.
Therefore, determining whether you are a tax resident or a
non-resident for tax purposes is a critical first step.
The most important factor in determining tax residency is whether your
family’s primary ties and center of life (Family Tie)
are in Canada. This is actually not directly related
to your immigration status (whether you are a permanent resident, citizen,
or foreign national).
Because residency status depends on each family’s specific facts and circumstances,
we strongly recommend consulting a professional CPA
to make a proper determination.
Non-residents who need to file a Canadian tax return must usually apply for a
Canadian temporary tax number (Individual Tax Number – ITN).
Depending on the situation, a non-resident may also need to apply for a
Non-resident account with the CRA.
The CRA requires that non-residents with Canadian rental income
have 25% of the gross monthly rent withheld and remitted as tax in advance.
After that, there are two options:
Option 1:
Pay 25% of gross rental income to the CRA each month and
do not file a tax return.
This approach is very simple, but:
- You cannot deduct any rental expenses (property tax, insurance, repairs, etc.).
- You will not receive any refund, regardless of your actual net income.
Option 2:
Pay 25% of gross rental income to the CRA each month and then
file a non-resident tax return under Section 216.
This option is more complex, but allows you to:
- Deduct rental expenses related to the property.
- Pay tax on your net rental income instead of gross rent.
The tax rate under Section 216 is currently 22.20% of net rental income.
The 25% tax withheld each month is treated as a prepayment.
When you file your Section 216 return, your final tax is calculated based on your
net income; any excess withholding will be refunded by the CRA.
At present, the processing time for these returns is typically around
4–6 months.
Example: Mr. Wang, a non-resident, owns a rental property in Canada.
His monthly rent is $3,000, so the annual gross rental income is $36,000.
If he chooses Option 1, he must pay the CRA
$750 in withholding tax each month ($3,000 × 25%),
for a total of $9,000 per year ($750 × 12).
He then does not file a tax return and cannot get any refund.
If he chooses Option 2, he still pays $750 per month
($3,000 × 25%) in withholding tax, totaling $9,000 for the year.
But at year-end, he files a Section 216 non-resident tax return.
Suppose the annual expenses related to the property
(property tax, insurance, repairs, etc.) total $20,000.
Then his net rental income is:
$36,000 − $20,000 = $16,000
The tax payable at 22.20% is:
$16,000 × 22.20% = $3,552
Since he has already paid $9,000 in withholding tax,
the CRA will issue a refund of:
$9,000 − $3,552 = $5,448.
Please note: To be eligible for a refund,
a non-resident Section 216 return must be filed
within two years after the end of the year
in which the rental income was earned.
For example, if you had rental income in 2020,
your latest filing deadline for the Section 216 return is
December 31, 2022.
The monthly withholding and remittance can be handled by your
property management company.
Most professional management companies already have a
Non-resident account with the CRA,
so you do not need to apply for one separately.
Early the following year, you will receive an
NR4 slip from the management company,
which shows the total rental income and the amount of withholding tax remitted.
When filing your Section 216 return, you must attach this NR4 slip and mail it to the CRA.
If you do not use a property management company,
the process is more complicated.
You must:
- Apply for your own Non-resident account with the CRA;
- Remit the monthly 25% withholding tax yourself;
-
At the beginning of the following year, provide the CRA with
details of the property and a breakdown of the monthly tax payments; - Request that the CRA prepare and issue an NR4 Proforma for you.
When you later file your Section 216 return,
you will also need to attach the NR4 slip and send it to the CRA.
As you can see, smart investors will probably already know
which option tends to be more beneficial.
While Option 2 is more complex and requires
you to keep all related expense receipts,
if you engage a professional accountant
to handle the process, you can save time, energy, and money —
truly a win on all fronts.
If you need help with non-resident rental reporting,
or have any other tax questions, please feel free to contact us.
