Electing under Section 216 of the Income Tax Act
What is a section 216 return?
As a non-resident of Canada, one can choose to file a separate income tax return for rental income earned in Canada. Choosing to send this return is called electing under section 216 of the income tax act.
This return is separate from any other return you have to send to CRA.
If you have more than one rental property in Canada and you make an election under section 216, you need to report all your Canadian rental income and expenses on one section 216 return.
Electing to file under section 216 allows you pay tax on your net Canadian-source rental income instead of on the gross income. If the non-resident tax withheld by the payer is more than the amount of tax payable calculated on section 216 return, CRA will refund the excess to taxpayer.
Section 216 return is usually due within two years from the end of the year in which the total income was paid to taxpayer.
If section 216 return is not filed by the due date, section 216 election becomes invalid. In such a case if payer did not withhold the correct amount, CRA will issue a non-resident tax assessment.
Withholding on net rental income (Form NR6)
If you decide to elect under section 216, you may consider another way of having non-resident tax withheld on your rental income. You can elect to have tax withheld on your net rental income instead of the gross amount.
In such a case taxpayer and his agent has to file a form NR6 with CRA. It is an undertaking to file an income tax return by a non-resident receiving rent from real or immovable property or receiving a timber royalty.
Form NR 6 has to be sent on or before January 1, of each year or before the first rental payment is due. Your agent should keep on withholding non-resident tax on the gross rental income until CRA approves, in writing, your form NR6.
After CRA has approved your form NR6, your agent can withhold non-resident tax at the rate of 25% on your net rental income instead of the gross income. This should be remitted to CRA on or before the 15th day of the month following the month the rental income is paid or credited to you. Failure to do so can result in charging daily compound interest by CRA on the amount not withheld or remitted to CRA. Penalties can also be imposed.
At the end of the year, your agent will give you two copies of NR4 slip showing gross amount of rental income paid or credited to you during the year and the amount of non-resident tax withheld.
If you sent Form NR6 to CRA and got approved, you must file a section 216 return for that year, even if you do not owe any tax.
If CRA approves your Form NR6 for a year and you do not file your section 216 return by the due date, you will be subject to non-resident tax on your gross rental income.
Source: Canada Revenue Agency Website
