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Section 216 Return

February 25, 2026

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Section 216 Return Explained: Canadian Rental Income and Your U.S. Tax Return

Tax year 2025 (filed in 2026)

Pioneer Professional Accountants Inc. | Cross-Border Canada-US Tax

Updated: January 20, 2026

If you are a U.S. resident (or U.S. taxpayer) who owns Canadian rental property, Canadian withholding tax rules can lead to significant over-withholding. A Section 216 return can allow you to be taxed on net rental income (income minus expenses) instead of 25% withholding on gross rents.

What is a Section 216 return?

Under Canadian rules, nonresidents generally face nonresident withholding tax on gross Canadian rental income. By electing under Section 216 and filing a special return, you may be able to calculate tax on net rental income and potentially obtain a refund if too much was withheld.

What income can (and cannot) be reported on a Section 216 return

  • Eligible: Canadian rental income from real or immovable property in Canada (and certain timber royalties).
  • Not eligible: employment income, business income, capital gains, or interest income (these generally require other Canadian filings if applicable).

Withholding and Form NR6 (optional)

Without planning, the payer/agent typically withholds 25% of gross rents. If Form NR6 is approved for the year, withholding may be based on estimated net rental income, but you must then file the Section 216 return by the NR6 due date.

Filing deadlines (Section 216 - tax year 2025)

  • April 30, 2026: deadline to report a recapture of CCA on a 2025 Section 216 return (where applicable).
  • June 30, 2026: deadline to file if CRA approved Form NR6 for 2025.
  • December 31, 2027: general deadline to file a 2025 Section 216 return (generally within two years from the end of the year rental income was paid/credited).

How it flows into your U.S. return

U.S. taxpayers generally report worldwide income, including Canadian rental income (often on Schedule E). Canadian tax paid on the rental income may be creditable in the U.S. using the foreign tax credit (Form 1116), subject to FTC limitation rules and timing considerations.

Documents we typically need

  • Rent roll / gross rents received and monthly statements
  • Expense support (property tax, insurance, utilities, repairs/maintenance, management fees, mortgage interest)
  • Nonresident withholding details (NR4 slips, proof of remittances, agent statements)
  • Purchase and sale documents if the property was acquired or sold, and CCA history if claimed in prior years

Important note

This document is general information only and does not constitute legal or tax advice. Filing obligations can change depending on whether the rental activity is considered a business, whether you disposed of the property, and whether NR6 was approved.

References

  • CRA: Electing under Section 216 - When to file a return (tax year 2025 deadlines).
  • CRA: Who can elect under Section 216 and what income cannot be reported.
  • IRS Instructions for Form 1040-NR / IRS guidance on foreign tax credits (general coordination).