It is not surprising that many non-residents of Canada (whether it be foreign investors or Canadian emigrants) who own and earn rental income from real property in Canada are often not aware of the Canadian non-resident withholding tax requirements and filing obligations. If these requirements are not properly met, there could be significant interest and/or penalties imposed by CRA for non-compliance.
CRA imposes a 25% withholding tax rate on the gross rental revenues the non-resident receives. The withholding tax must be remitted to CRA on or before the 15th day of the month following the month the rental income is paid. In some circumstances, the remittance of the tax can cause cash flow issues for the non-resident, especially, if the rental property is operating at a net loss. There is an election (Form NR6) that can be made to allow the remittance of the tax on the net amount if certain conditions are met. Form NR6 should be filed on or before the first day of each tax year, or when the first rental payment is due. Once CRA approves the election, the 25% withholding tax is applied to the net amount.
In addition, the non-resident individual has until June 30 of the next year to file the Canadian Income Tax Return for Electing Under Section 216. If the non-resident does not file the return by the due date, CRA will assess 25% of the gross rental income plus any penalty and interest that apply.
CRA has recently confirmed that they have only just begun processing the NR6 forms the 2020 tax year election period. Therefore, if approval has not been issued in writing by February 15th, 2020 (for January’s rent – the 1st rental payment in 2020), the non-resident withholding tax must be applied to the gross rental amount. As a result, even if the net basis method was approved in 2019 for the entire rental period, the 25% withholding tax would resort back to being applied to the gross rental revenues until such time CRA approves the 2020 tax year election NR6 form.
At Welch LLP we have the expertise to help both non-residents and withholding agents with their tax remittances and all filing requirements.
Here’s the CRA with more information for non-residents who receive rental income from real and immovable property in Canada.