Why Do Some Non-Residents Overpay Canadian Tax on Rental Income?
Every year, thousands of non-resident landlords in Canada overpay their rental taxes — often without realizing it. They assume that once their tenant or property manager withholds 25% for the Canada Revenue Agency (CRA), the job is done.
But here’s the truth: that 25% withholding is just a default rule, not a final calculation. If you don’t take action, you might be leaving thousands of dollars in refunds on the table.
Let’s break down why overpayment happens and how to prevent it.
1. They Don’t File Under Section 216
The number one reason non-residents overpay is failing to file a Section 216 tax return.
By default, the CRA taxes non-residents 25% on gross rent — meaning no deductions for mortgage interest, property tax, insurance, or repairs.
Example: You earn $36,000 in rent and pay $25,000 in expenses. The CRA still withholds $9,000, even though your actual profit was only $11,000.
If you file under Section 216, you’d only pay tax on the $11,000 profit — possibly $1,800–$2,000 — and you’d get a refund for the difference.
No Section 216 = automatic overpayment.
2. They Don’t File the NR6 Form Early
Even landlords who file Section 216 returns can lose money by missing the NR6 filing deadline.
The NR6 form lets your property manager withhold tax on estimated net income instead of gross rent. But it must be approved before rent payments begin.
If you file too late, the CRA will still demand the full 25% withholding for previous months, and your only option will be waiting months for a refund.
Timely filing = less tax upfront.
3. They Ignore Deductions They’re Entitled To
Many non-residents forget that deductions work the same way for them as for residents under Section 216. You can claim:
Property management fees
Mortgage interest
Repairs and maintenance
Property taxes
Utilities (if paid by landlord)
Insurance premiums
If you skip claiming deductions, you’re effectively volunteering to pay tax on money you never actually kept.
4. They Don’t Reclaim Refunds
The CRA doesn’t automatically send you money you’re owed. You must file the Section 216 return to trigger a refund.
If you never file, the CRA keeps your withheld tax indefinitely — even if your property made a loss.
5. They Don’t Seek Professional Guidance
Canadian rental taxation for non-residents is complex, and mistakes are common. Filing correctly requires:
NR6 submission before rent begins
Monthly remittance tracking
Section 216 filing by June 30
Accurate expense documentation
Missing one step means more tax than necessary.
