Are there withholding taxes on my rental income?
Yes, any person remitting rents to a non-resident is required to withhold and remit to the Canada Revenue Agency (“CRA”) 25% of the gross rents paid. Most tenants, however, are unaware of this obligation. Accordingly, many non-residents with rental property in Canada remit 25% of their gross rental income to the CRA on their own account.
Do I need to file a rental tax return?
No; however, you can file a Section 216 elective return to get some of the 25% withholding taxes refunded (see below). You only have 2 years (and in some cases 6 months) from the year-end to file the non-resident Section 216 return. If you don’t file, then the 25% withholding tax is a final payment of tax in Canada.
How do I get the tax withheld back?
The 25% withheld on the gross rental income is the final tax obligation. However, a section 216 tax return can be filed to pay tax on the net rental income (gross sales – rental expenses = net rental income) of the rental property at Canada’s marginal tax rates. This generally allows a significant portion of the taxes withheld to be refunded.
What types of rental expenses are related to my property?
Typical rental expenses include advertising, insurance, interest, legal & accounting costs, management & strata fees, maintenance and repairs, property taxes, utilities, and any relevant travel costs related to maintaining the rental property. These must all be expenses incurred for the purpose of making money with your rental property and documented by receipts.
I bought a property in Canada and I am going to rent it, but first I'm going to renovate it. Are the renovation costs important or just the rental costs?
Yes, the renovation costs are important to track. Though not deductible if incurred prior to renting, these costs will increase the tax-adjusted cost base of the Canadian property. This is important when you sell the property, and properly tracking these costs could help reduce your taxes upon sale.
I have had a rental property for several years, and I just learned about the non-resident withholding tax requirements in Canada. What should I do?
You have to notify CRA of your rental income from your property. You should immediately file all Section 216 elective tax returns under CRA’s section 216 Late-filing Policy.
What if I don't bother with the above?
If a non-resident is not claiming rental income in Canada and wants to sell the property, the CRA will request 25% of all gross revenue to be paid before issuing the certificate of compliance.
To learn more about your obligations when you sell your property, read Non-Residents Selling Property in Canada.
Does the Underused Housing Tax ("UHT") apply to me?
As a non-Canadian citizen or permanent resident of Canada renting out property in Canada you would be considered an “affected owner”, thus requiring you to file the UHT return for each year, due by April 30 of the following year. There’s likely an exemption from the tax because you are renting out the property, however you STILL NEED TO FILE A RETURN TO CLAIM AN EXEMPTION BY THE DUE DATE!
There are significant penalties for affected owners who fail to file an annual return when it is due, with a minimum penalty of $5,000 for individuals who are affected owners, and $10,000 for owners other than individuals.
This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.
If you are looking for Tax Services, Crowe MacKay provides personalized support. Our tax professionals will help you maximize tax-planning opportunities and ensure the minimum amount required by law is paid.
