If you do not live in Canada but have a rental property here, the tax reporting requirements can be a challenge. If the rental property is not setup correctly you could be subject to significant penalties. Having a Public Business Accountant involved prior to the start of your rental could save you a lot of money and worry.
Non-residents of Canada with rental property are subject to special tax remitting and filing requirements. Foreign residents are required to remit 25% of their gross rents (before expenses) as a tax withholding unless they have filed a NR5 – Application by a Non-Resident of Canada for a Reduction in the Amount of Non-Resident Tax Required to be Withheld for Tax Year. Failure to do so can result in penalties. Since most rental properties are not very profitable from rental revenues, filing the NR5 can be very beneficial from a cash flow standpoint. This form must be paper filed.
After each year, non-residents with rental property that choose not to remit the standard 25% are also required to file a tax return within six months of the year end. Any tax owing is due April 30th. This is a Section 216 return, not a regular T1 tax return. Like the NR5, these Section 216 returns must be paper filed.
If you have a profit on your Canadian rental property and pay tax, you are likely required to report the rental activity in your place of residence as part of your worldwide income. However, you would most likely be eligible to claim the foreign tax credit if your place of residence.
Solomon Nordine is the owner and president of Complete Accounting Solutions. Mr. Nordine is a Fellow Public Business Accountant (FPBA) and a United States Accountant.