Buying and Selling Canadian Rental Property:
Canada’s solid banking system coupled with a strong economy have attracted investors from all over the world. Non-resident individuals have purchased rental properties across Canada. Owning a rental property in Canada can be profitable if you understand the Canadian tax laws that apply to non-resident individuals.
To own a rental property in Canada you are not required to be a citizen or even a resident. However, if you have Canadian source income you will be required to comply with Canada’s tax laws and file a annual income tax return. The Canada Revenue Agency imposes hefty interest and penalties on non-resident individuals if they don’t file Canadian income tax returns correctly.
What’s required to file a tax return?
Before you can file a tax return in Canada, you need to apply for a tax account number, usually referred to as Social Insurance Number (SIN) or Individual Tax Number (ITN). If you are a non-resident and need to file a tax return, you can submit an application to receive an ITN number. The supporting documents submitted must be certified true copies of the original document.
Non-Resident Withholding Tax 25%
Your tenant or property manager is required to pay 25% withholding tax on gross rental amount of your property to the CRA. This has to be done on a monthly basis usually on or before the 15th day of the month following the month the rental income is paid to you. The CRA imposes interest and penalties if the tax payer does not withhold and remit tax on a monthly basis.
At the end of the year your tenant or property manager is required to issue a NR4 return which shows the rental amount paid to you during the year and the amount of non-resident tax withheld.
In certain circumstances 25% withholding tax may not be required if you file the appropriate approvals before you start collecting rental income.
Anthony emigrated from Canada in 2013 and became a resident of England. He did not sell his house when he left Canada and decided to rent it out for a few years. In 2015, his property manager in Canada withheld and remitted non-resident tax of $5,000 (25% of the gross rental income of $20,000) to the CRA withholding tax division. Anthony had the following income and expenses from the property in 2015:
Gross rental income …………………………………………… $20,000
Less expenses: Allowable expenses ……………………. –$6,000
Net rental income ………………………………………………. $14,000
To recover the extra taxes paid Anthony has the option to file a tax return and pay tax based on the $14,000 net rental income. Since Anthony has already paid taxes of $5,000 (which was based on the gross income of $20,000) the CRA will refund the extra taxes paid.
Expenses you can deduct related to your rental property:
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Non-Residents Selling Canadian Rental Property
When a non-resident sells Canadian rental property they must notify the CRA within 10 days, or face a $2,500 penalty. The sale proceeds will be held in Canada until you can obtain a clearance certificate. A clearance will only be issued once you have met all the tax requirements of the CRA.
Who Can help me?
Our firm is specialized in non-resident tax matters and we can help you file all the required documents in a timely manner and be compliant with all the CRA reporting requirements. CRA imposes strict penalties on individuals who miss deadlines and these penalties can be high as $2,500 per tax payer. Contact our firm for all your non-resident tax needs.
CRA has more information on its website for non-residents owning rental properties in Canada: http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nnrs-eng.html
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