Understanding Section 216 and NR6: A Guide for Non-Resident Property Owners in Canada

If you’re a non-resident of Canada who earns rental income from a Canadian property, you are subject to Canadian income tax — even if you live abroad.

This article explains the default rule, what Section 216 and Form NR6 are, how they work together, and why filing correctly can save you money.

1. The Default Rule: 25% Withholding Tax on Gross Rent

Under Canadian tax law, when a non-resident earns rental income from property located in Canada, the payer must withhold 25% of the gross rent and remit it to the CRA under Part XIII of the Income Tax Act (“Act”). Remittance is typically due by the 15^th day of the month following the month in which the rent payment is made.

Although technically, the payer should be the tenant, Canada Revenue Agency (“CRA”)’s administrative practice is that tenants are not expected to know the residency of their landlord nor withhold 25% of their rent payments. In such as, the non-resident landlord may self-manage the remittance of the 25% Part XIII withholding tax (they will need to obtain a non-resident account number).

This 25% is considered a final tax, meaning no deductions for mortgage interest, property taxes, repairs, or other expenses are allowed unless you elect and file a tax return under Section 216 of the Act.

For example:

• Monthly rent: $2,000

• Annual rent: $24,000

• 25 percent withholding: $6,000 remitted to CRA
  

If you have $10,000 in deductible expenses, you’ve paid tax on money you never actually kept. Section 216 fixes this.

2. What Is Section 216 of the Act?

Section 216 of the Act gives non-residents the option to elect to file a Canadian income tax return (“Section 216 Return”) to report their net rental income (gross rent minus allowable expenses) and pay Canadian income tax on the net rental income. This, in most cases would result in lower final Canadian tax liabilities than under the default rule mentioned above. In such scenario, the non-resident would be entitled to a refund for the difference between the 25% withholding tax remitted and the actual Canadian tax liability determined under Section 216 Return.

For avoidance of doubt, electing to file Section 216 Return does not “turn off” the Default Rule mentioned above. Rather, electing under Section 216 allows the non-resident person to use the net rental income as the basis for their Canadian tax liability as opposed to a flat 25% of the gross rent.

In determining the net rental income, the deductions that the non-resident could claim include:

• Mortgage interest (but not principal payments);

• Property taxes;

• Insurance;

• Repairs and maintenance;

• Management fees;

• Utilities (if paid by landlord);

• Accounting and legal fees; and

• Tax depreciation (capital cost allowance)

  
  

3. Introducing Form NR6 – Reducing Withholding Up Front

For Section 216 Return filers, the 25% withholding tax on the gross rent represents significant cash flow issue where significant amount of gross rent is tied up during the year in prepayment of taxes which is released when the Section 216 Return is filed.

To “smooth” the cash flow, Form NR6 – “Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real Property” may be jointly filed by the non-resident and a Canadian agent.

By filing the Form NR6, the Canadian agent may withhold and remit 25% of the net rental income during the year once the form is approved.

Example

• Annual gross rent = $24,000

• Estimated expenses = $10,000

• Net income = $14,000

• Reduced withholding for the year = 25 % × $14,000 = $3,500

  
  

By filing the NR6 early, you keep an extra $2,500 of cash flow during the year compared with default withholding of $6,000 (i.e. 25% of annual gross rent of $24,000).

The Canadian agent will also be required to file Form NR4 – “Statements of Amounts Paid or Credited to Non-Residents of Canada” after the end of the year reporting the amount of rent payment and taxes remitted during the year.

It should be noted that the Canadian agent plays an important compliance role. For example, on Form NR6, the agent declares that if the non-resident does not file an income tax return or pay tax according to the undertaking, they will have to pay the CRA the full amount of tax that would otherwise have been required to be remitted for the year as well as applicable penalty and interest charges. Furthermore, the Canadian agent will be required to obtained a non-resident account number.

4. Timing and Deadlines

Withholding Tax Remittance

• Whether NR6 is approved or not, the withholding tax is required to be remitted by the 15^th day of the month following the month in which the rent payment is made. (i.e. rent payment made in February is required to be remitted by March 15).

Form NR6

• Should be submitted on or before January 1 of each year or before the first rental payment is due.

• The CRA may take several months to process Form NR6.

• It must be signed by both the non-resident owner and a Canadian agent (often your property manager).

  
  

Form NR4

• Due by March 31 of the following year.

  
  

NR4 Proforma

• If there is no Canadian agent and the non-resident landlord self-managed the remittance of 25% withholding tax, the non-resident landlord may submit a NR4 Proforma request to the CRA following the end of the year requesting the CRA to issue Form NR4 to the non-resident landlord showing the rent payments and withholding taxes remitted for the previous year. NR4 is required in order for the CRA to credit the taxes withheld on the Section 216 Return.

Section 216 Return

• If you filed an NR6, your Section 216 Return is due by June 30 of the following year.

• If you did not file an NR6, the return can be filed up to two years after the end of the calendar year in which the income was earned.

• The due date for the Section 216 Return may be earlier in certain situations (for example, if the rental property was sold in that year and CCA recapture is made, etc.).

• If there is a balance owing on the Section 216 Return, it is due by April 30 of the following year.

  
  

It is imperative that the Section 216 Return is filed on time in order to ensure that your election remains valid and that you’re eligible for any refund of overpaid tax.

(CRA does have a late-filing Section 216 Return policy for non-residents who were unaware of the withholding and section 216 rules. More detail of this policy may be found here).

5. Conclusion

The Section 216 election and Form NR6 are powerful tools that allow non-resident property owners to pay tax on net rental income, not gross rent. By planning ahead — filing NR6 early and ensuring proper withholding — you can preserve cash flow, reduce taxes, and stay fully compliant with Canadian tax law.

Working with a qualified Canadian CPA ensures every step, from NR6 submission to the final Section 216 Return, is done correctly and on time.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute professional advice. Readers should seek advice from a qualified professional regarding their specific situation before taking any action.