Can Non-Residents Elect Under Section 216 to Pay Tax on Net Rental Income?
If you’re a non-resident who owns and rents out property in Canada, you might already know the CRA requires a 25% tax to be withheld on your gross rental income. But there’s a smarter option — and it’s called the Section 216 election.
This election allows non-residents to pay tax on net rental income — the amount left after deducting allowable expenses — instead of gross rent. The savings can be substantial, and the process is 100% legal if done properly.
So let’s break it down.
What Is Section 216?
Section 216 is a provision of the Income Tax Act that lets non-residents file a Canadian tax return for rental income and pay tax based on net income (income minus expenses), just like a resident landlord would.
Why does this matter? Because the default 25% withholding is on gross rent — with no consideration for how much you’re actually making. Even if you have major expenses like mortgage interest, property tax, insurance, or repairs, the CRA will still take 25% of every dollar you earn — unless you make this election.
Who Can Elect?
Any non-resident individual, partnership, or corporation earning rental income from Canadian property can elect under Section 216. It doesn’t matter if the property is used for long-term leases or short-term vacation rentals — if there’s rent involved, this election applies.
How to Elect Properly
To take advantage of Section 216, there are two key steps:
File the NR6 Form early in the year (or before rent is paid). This lets your property manager or tenant withhold tax based on your estimated net income instead of gross.
Submit a Section 216 tax return after the end of the year. This return reports your actual rental income and expenses and calculates the tax you owe (or the refund you’re due).
The deadline to file is June 30 of the following year.
If you skip the NR6, you can still file under Section 216 — but the CRA may hold onto the full 25% withheld and take longer to process your refund.
Real Example
Let’s say you rent out a property for $30,000 per year and your expenses total $20,000.
Without Section 216: 25% of $30,000 = $7,500 tax withheld
With Section 216: Tax is based on $10,000 net income → you may owe only $1,500–$2,000 depending on tax brackets
That’s potentially a $5,000+ refund just for filing one form and a tax return.
Why It’s Worth It
Most non-resident landlords who elect under Section 216 pay significantly less tax and get to claim expenses that would otherwise be ignored. It’s a smarter, fairer system — but you have to take the first step and make the election.
