Can Non-Residents Deduct Expenses from Canadian Rental Income Without Filing an Election?
You’re a non-resident renting out a property in Canada. Maybe you’re paying property taxes, insurance, maintenance fees, and mortgage interest. Naturally, you’d assume you can deduct those costs before paying tax.
But here’s the catch: unless you formally elect under Section 216, the Canada Revenue Agency (CRA) won’t let you deduct a single dollar.
This surprises many non-resident landlords. They think expenses will automatically be considered. But without the right filing, the CRA taxes gross rent — not your profit.
Let’s unpack why that happens and how to fix it.
The Default Rule: 25% Withholding on Gross Rent
Under Canadian tax law, if you’re a non-resident earning rental income from property in Canada, your tenant or property manager is required to withhold 25% of gross rent and remit it to the CRA every month. This is called Part XIII tax.
It’s a flat tax — meaning no deductions, no credits, no exceptions.
So if you earn $2,000/month in rent, $500 goes straight to the CRA, even if your mortgage and property expenses eat up most of your income.
Want to Deduct Expenses? You Must File the NR6 and Section 216 Return
To deduct expenses, you must:
File the NR6 form early in the year to notify the CRA you’re electing under Section 216
Submit a Section 216 tax return after the year ends to report net rental income (income after expenses)
Only when you follow this two-step process will the CRA let you:
Deduct mortgage interest
Deduct property tax
Deduct insurance and repairs
Claim depreciation (capital cost allowance) if applicable
Potentially get a tax refund if you overpaid withholding
Without the NR6 and Section 216 return, you’re locked into the default gross rent tax — no matter how many expenses you had.
What If You Didn’t File an NR6?
Even if you missed the NR6, you can still file a Section 216 return by June 30 of the following year. While this won’t reduce the amount of tax withheld during the year, it can still get you a refund if your net income was lower than your gross rent.
However, the CRA won’t consider your expenses if you skip the return altogether.
Don’t Make the Mistake of Assuming
Many non-resident landlords trust their property manager is “handling the taxes” or that “the CRA will adjust later.” But unless you take formal steps and file under Section 216, the CRA will keep your tax as if you made 100% profit — even when you didn’t.
