Nonresidents of Canada and Canadian Rental Properties

Contributed by Dale A. Walters,CPA, PFS,CFP® and David H. Levine, CA, CPA  When a nonresident of Canada has a property in Canada that is an income producing property the following rules apply:

  1. The owner of the property needs to have a resident of Canada act as their agent;
  2. The agent is supposed to collect the rents and remit the appropriate tax to Canada Revenue as withholding tax;
  3. The agent is supposed to withhold 25% of the gross rents and remit to Canada Revenue as withholding tax.  The taxpayer is not obligated to file a Canadian tax return.
  4. Alternatively, the agent can withhold 25% of the net rents and remit to Canada Revenue. The procedure is that before the first rental payment is due in the year form NR6 is filed with Canada Revenue Agency.  Form NR6 indicates an estimate of the gross rents for the upcoming year and an estimated list of expenses for the upcoming year.  The agent would then pay Canada Revenue 25% of the estimated net rental income.  If the estimated net rental income is actually an estimated net rental loss for the year then there would be NIL amounts sent to Canada Revenue as withholding.  Form NR6 is due by the end of January of the year.  By filing the NR6 the non-resident taxpayer has agreed to file a Canadian tax return by June 30 of the following year.

We have noted that as of 2012 tax years Canada Revenue has been disallowing the expenses of taxpayers elected to file a NR6 and have filed a Canadian tax return after June 30 of the following year.

It is interesting to note that Canada Revenue has administratively allowed individuals who have not elected to file a Canadian tax return to actually file a Canadian tax return up to two years later.  The problem is that if you elect to file a Canadian tax return and you file it late which is after June 30 of the following year then all the expenses of the rental property are disallowed whereas if you do not elect to file a return and you actually do file a return late Canada Revenue has been processing those returns allowing the rental expenses.

Our recommendation is that all non-residents with rental properties elect to file a NR6 as well as a return and be subject to the June 30 filing date.  Our concern is that Canada Revenue could charge interest on the amount of 25% of the gross rents that should have been withheld each month in the year.  The exception to this rule is if the tax on the net rental income is greater than 25% on the gross income then the election to file a Canadian return should not be made.

We can prepare all the paperwork that needs to be filed with the Canada Revenue Agency.  We will require a list of the estimated rental income and expenses as well as the name of a Canadian resident that can act as your agent.

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