How Does the CRA Treat Income from Subleasing Canadian Property by Non-Residents?
If you’re a non-resident of Canada who rents out your property and then allows someone else to sublease it, the tax implications can get complicated. Many landlords assume subleasing is just another form of rental activity — but the Canada Revenue Agency (CRA) treats it very specifically under the Income Tax Act.
Let’s break down how subleasing works, who’s responsible for the taxes, and what every non-resident needs to know to stay compliant.
Subleasing 101: Who’s the Landlord in the CRA’s Eyes?
When a tenant rents your property and then subleases it to another person, the CRA recognizes two separate rental relationships:
You (the non-resident owner) leasing to your main tenant, and
Your tenant (the sublessor) leasing to the subtenant.
From the CRA’s perspective, you still earn Canadian-source rental income because your original agreement generates rent within Canada. That income remains fully taxable — even if your tenant earns additional money from the sublease.
You are responsible for your rental tax filings under Section 216, and your tenant is responsible for their own taxable income from the sublease arrangement.
Non-Residents Still Face Withholding Requirements
Even with subleases, the CRA requires 25% tax withholding on gross rent paid to a non-resident. If your tenant pays you directly (and not through a Canadian property manager), that tenant becomes the withholding agent and must remit the tax to the CRA on your behalf.
If the tenant fails to do so, both of you could face penalties and interest.
The subtenant, however, pays rent to your tenant — not you — so they are not directly responsible for your CRA tax withholding.
Section 216 Still Applies
If you file the NR6 form and make a Section 216 election, you can still be taxed on net rental income instead of gross rent. This means you can deduct expenses like property taxes, insurance, repairs, and mortgage interest.
The CRA doesn’t care who occupies the property — it only cares that you’re earning rent from Canadian real estate. The sublease structure doesn’t remove your tax responsibility.
Watch Out for “Hidden” Income Issues
The CRA may question your filings if:
You underreport rent because the tenant charges a subtenant more than what you declared.
You receive indirect benefits (like rent-in-kind or reimbursements) that you fail to include as income.
You claim expenses on the entire property even if part is used personally or by others.
Keep all agreements, receipts, and correspondence to prove who paid what.
The Takeaway
Subleasing doesn’t shield non-residents from Canadian tax. The CRA still considers you the property’s ultimate income earner. If rent originates from your Canadian property, it’s taxable in Canada — no exceptions.
