Taxes for Non-Residents

Yes, in most cases. By default a 25% withholding tax on gross rent satisfies your Canadian tax obligation with no return required, but you can usually save a lot of money by electing under Section 216 to file a Canadian non-resident return. The Section 216 election allows you to be taxed on net rental income (after expenses) at regular graduated rates rather than 25% of gross. This is a particularly favourable trade when expenses, depreciation, and mortgage interest are significant. The election must generally be made within two years of year-end. A Form NR6 filed in advance lets the withholding agent remit on net rather than gross during the year.

Both elections let a non-resident file a Canadian return on specific income types to recover withholding tax, but they cover different income. Section 216 covers Canadian rental real estate income, letting you report net rather than gross and apply graduated rates. Section 217 covers certain Canadian employment, pension, RRSP, RRIF, OAS, and CPP/QPP payments, letting you file a regular T1 to potentially benefit from personal credits and lower marginal rates. Section 217 is most often used by retirees living abroad who receive Canadian pension income, where the regular 25% non-resident withholding exceeds what a graduated-rate calculation would produce.

The Canadian domestic non-resident withholding rate is 25% on most passive income: dividends, rental income, royalties, and certain interest. Tax treaties typically reduce this. Under the Canada-US treaty, for example, dividends are reduced to 15% (or 5% for substantial corporate shareholdings), most interest is reduced to 0%, and royalties to 10% or less depending on type. The reduction isn't automatic. The payer needs evidence of your treaty residency (usually Form NR301 for individuals, NR302 for partnerships, NR303 for hybrid entities) to apply the lower rate at source. Without the form, the payer must withhold at the full 25% rate.

Treaty benefits are typically claimed by certifying your treaty residency to the Canadian payer using Form NR301 (individuals), NR302 (partnerships), or NR303 (hybrid entities). The form must be signed and provided to the payer before they apply the reduced rate. For income already over-withheld at the full domestic rate, you can recover excess tax by filing Form NR7-R (Application for Refund of Part XIII Tax Withheld) within two years of the year of withholding. Some claims, particularly for business profits or treaty-based exemptions, require filing a non-resident T2 and supporting Form T106 or T2 Schedule 91. The CRA may request residency certificates from your home country's tax authority for verification.