Canadian Non-Resident Tax
Many Canadians own property in Canada for the sole purpose of earning rental income. And much like any other income, rental income is taxable on your annual tax returns. However, Canadians are not the only individuals who earn this income in Canada. Non-residents also purchase property in Canada to rent out for financial gain. For these individuals, section 216 of the Income Tax Act provides an optional avenue in which to report their rental income.
Rental Income and non-resident tax
When a non-resident receives rental income from real property in Canada, the payer of the income is obligated to withhold non-resident tax at the rate of 25% on the gross rental income paid. The payer must then send this withholding tax to the Canada Revenue Agency on or before the 15th day of the month following the month the rental income is paid.
Generally, the non-resident tax withheld is considered the non-resident’s final tax return obligation to Canada on the rental income. However, if the non-resident elects under section 216 of the Income Tax Act, he or she may pay less income tax or even receive a tax refund of some or all of the non-resident tax withheld.
For the purposes of section 216, you are typically considered a “non-resident” if you permanently live outside Canada and you do not have any residential ties with Canada.
The Section 216 election process
A non-resident of Canada can choose or “elect” to send the CRA a separate Canadian income tax return to report his or her rental income from real property in Canada. This is called a section 216 election, and requires filing of a different income tax return.
Electing under section 216 allows you to pay income tax on your net Canadian-source rental income (i.e. rental income minus expenses) instead of on the gross amount (i.e. rental income only). If the non-resident tax withheld by the payer is more than the amount of tax payable calculated on your section 216 return, you will be entitled to a tax refund for the excess.
A section 216 return is only valid if it is filed two years from the end of the year in which the rental income was paid. And, as many individuals own more than one property for the purposes of earning rental income, the CRA only requires you to file one tax return for all of your rental properties. In some situations, you can file late section 216 elections.
If you intend to elect under section 216, you can also apply to have your non-resident tax withheld on your net rental income instead of on the gross amount. This would allow you to pay less income tax upfront, and not have to wait for a potential tax refund after filing the income tax return. To do this, you and your agent (i.e. any Canadian person who acts on your behalf regarding your Canadian rental income) have to complete and file a withholding tax form, and must then wait for approval from the CRA. If the withholding tax election is filed, the income tax return is due six months after the year end; any taxes payable are due by April 30.
Section 216 elections can be a complicated and cumbersome process. The tax accountants at Tax Doctors Canada have extensive experience with these elections They can and will ensure you are properly filing your income tax returns and receiving the greatest tax refund possible. You can count on Tax Doctors Canada to give the best in income tax services no matter what your tax return needs.
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