If you own immovable property in Canada, like in North York, East York, or Etobicoke, but don’t live here, you will have to fulfill certain financial obligations as a non-resident individual. Non-residents must pay the non-resident rental income tax on their gross rental income.
However, it’s actually up to the property manager or tenant to have the tax withheld from their gross rent. The easiest way to take care of this tax on non-residents is through a property manager, who will often include this service as part of their property management fees and other rental expenses. When rental income is paid on real or immovable property in Canada, the tax for non-residents amounts to 25% of the gross rental income paid or credited to the owner.
Owning a rental property in Toronto can be quite lucrative, particularly in Toronto’s most-desired communities, like Vaughan, Thornhill, or Richmond Hill. However, not meeting your tax obligations set out by the Canada Revenue Agency (CRA) will cause serious legal and financial consequences. When you earn rental income, you must ensure that you abide by all parts of Canada’s Income Tax Act, including those that call for non-resident tax withheld from rental income.
Determine Residency
A non-resident receiving rent in the Greater Toronto Area, including in and around Mississauga, like in Square One, Meadowvale, or Streetsville, must file the appropriate form to officially determine their residency.
The CRA states that non-resident owners are those who normally, customarily, or routinely live in another country and are not a resident of Canada. They must also not have “significant residential ties in Canada” and either live outside the country throughout the tax year or stay in Canada for less than 183 days in the tax year.
Submit NR73 Form
The filing obligations for a non-resident of Canada include the NR73 form if you are leaving Canada or the NR74 form if you are entering the country. The CRA approves your residency status, which dictates how you pay tax on your gross rental income paid. The agency covers various scenarios, like if you have residential ties with Canada and your residency status, if you left Canada, if you entered Canada, and if you normally live in another country. Each of these scenarios comes with different reporting requirements on your tax return, which includes the amount of rental income paid from gross rents.
Collect NR4 from Tenants
Non-residents who receive rental income from real property in Canada, including Toronto’s most attractive communities, like Thornhill and Richmond Hill, must have the non-resident tax withheld from their Canadian rental income from the first rental payment.
The non-resident withholding tax must be reported on the NR4, which the non-resident must collect from their tenants or property manager.
Submit NR4 Form to CRA
The NR4 must show the gross rental income paid or credited to non-resident owners and the amount of non-resident tax withheld. The form must be filed with the CRA and include an information return that will then use with the owner’s Canadian income tax return.
In general, the non-resident tax withheld is your final tax obligation on your Canadian rental income on real or immovable property. If you wish to withhold non-resident tax payable on the net amount, you will have to file a separate Canadian tax return. Here’s what you need to know to do this.
Assign Property Manager as “Canadian Agent”
Due to the intricacies involved in property taxes, income tax on rental income, and withholding tax requirements, a non-resident property owner would be wise to hire a property management firm and legally list them as their Canadian agent. They can take care of filing all the necessary forms to ensure that the owner will pay the CRA for everything due on time.
Under section 216 of the Income Tax Act, you can choose to have your non-resident tax withheld on your net rental income instead of on the gross amount by having your agent in Canada complete form NR6 and file it with the CRA. You will have to send the firm on or before every January 1 or before the first rental payment is due.
Submit form NR6
After the CRA approves the form NR6, the agent can withhold a non-resident tax of 25% on your net rental income from real property instead of the gross amount. As a result, you may have to pay less tax than if you had to pay based on the gross amount of rental income. The tax must be paid on or before the 15th of the month after the month the rental income is paid or credited to you.
In general, you must send your section 216 return to the CRA within two years of the end of the year in which you had the income paid or credited to you. When the CRA approves your NR6 for a particular year, you must file a Form T1159, which is the Income Tax Return for Electing under Section 216, even if you down owe any tax or are not anticipating a refund. The return must be filed on or before the following June 30. You can learn more about the process here.
FAQs
How Do I Declare Non-Residency in Canada?
To declare non-residency in Canada, you must cut all of your primary residential connections with the country and most of your secondary connections.
Primary ties include having a personal residence in Canada that you either own or rent, having a spouse or common-law partner living in the country, or having dependents living here. Secondary ties include things like having a driver’s license, health card, bank accounts, credit cards and even pets or other personal possessions.
Once this process is complete, you can fill out the N73 form to determine your residency status.
Final Thoughts
There is much to consider when buying rental property. The Greater Toronto Area, particularly certain communities like those in and around Etobicoke, including New Toronto, Mimico, Alderwood, and Long Branch, are highly attractive to renters. As a result, investors can rake in significant amounts of rental income by owning property in those areas and several other Toronto-area communities.
However, if you aren’t a resident of Canada, you must understand the many tax implications and filing requirements. The best way to do this is to hire a Toronto property management firm. Furthermore, Buttonwood can take care of all your needs and advise you regarding your best courses of action.
