Non-Resident Real Estate Tax – Section 216

Withholding Tax – Non-Resident

When we talk about withholding tax for non-tax residents of Canada, the general tax rate is 25% of the gross amount received. This means that passive sources of income, such as rent, royalties and dividends under the Canadian Income Tax Act are taxable.

This means that the Canadian resident who is paying to the non-resident is required to withhold tax and remit the payment to the Canada Revenue Agency. Should there be a tax treaty between Canada and the country in which the non-resident resides than the withholding tax can be reduced or even eliminated in some circumstances.

Real Estate Taxation to Non-Residents

In terms of real estate, any rental income earned by the non-resident has an option to elect to be taxed on the NET rent instead of the GROSS amount. This can reduce the amount of tax withheld for the non-resident.

Should this be the best option for the non-resident, Form T1-NR needs to be filed annually in order to qualify.

Like Canada’s Withholding Tax, the non-resident is not able to claim any deductions or credits except for rental expenses.

All non-residents who file under Section 216 MUST file their tax returns by June 30th of the following year. Should a non-resident not file within 2 years of the deadline, they will lose the opportunity to be taxed on NET rent.

Should a non-resident fail to file, and they’ve identified as a tax compliance problem but have not yet been contacted by the CRA, they should use the Voluntary Disclosure Program to come forward. By doing so and after being approved and accepted by the CRA, there will be full penalty relief and partial interest relief. The non-resident will also not be prosecuted for Tax Evasion.

While the VDP does not deal with late filed returns under Section 216, non-residents can receive the same tax amnesty through the International Tax Service Office.

This is general comment, and you should contact Tax Partners for any questions by sending an email to info@taxpartners.ca or (905) 836-8755.

 

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