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December 8, 2025
When you are not a resident of Canada and receive rental income, you are dealing with two complicated tax regimes. To handle your property investment in Canada in a way that will maximize your profits, you need expertise. Approaching a qualified US Canada Tax Accountant is the most effective way to ensure smooth compliance and secure your necessary documentation from the Canada Revenue Agency (CRA).
The default tax rule is the largest financial trap to non-resident landlords. The CRA provides a flat Part XIII withholding tax of 25% on your gross rental income, without general planning. This process is very inefficient in taxation. The tax is paid on your total revenue, not your actual profit, because you are not allowed to deduct expenses like property taxes, mortgage interest, or repairs. An expert will carry out the Section 216 election that will enable you to be taxed on your net rental income.
To avoid having 25% of your gross income withheld all year, you must proactively file the Undertaking to File (Form NR6). This form should be submitted before the 1st of the tax year. An approved NR6, is more or less your first CRA Compliance Certificate. Upon approval, the CRA will allow your Canadian payer to charge you 25% on your estimated net income as opposed to the gross amount. This increases your cash flow significantly in the short run.
| Tax Feature | Default Part XIII Withholding | Section 216 Election with NR6 |
|---|---|---|
| Tax Basis | Gross Rental Income | Net Rental Income (Gross less Expenses) |
| Withholding | 25% of Gross Income | 25% of Estimated Net Income |
| Deductible Expenses | No deductions allowed | All allowable expenses included |
For US non-residents, the complication doubles. You must report your worldwide income to the IRS. This would require a qualified US Canada Tax Accountant so that there is no risk of being taxed by both nations on the same income. They apply the knowledge of the US-Canada Tax Treaty in order to claim the Foreign Tax Credits (FTC) properly. This avoids the double taxation and proper reporting to the CRA and IRS.
The final step is filing your Section 216 tax return (Form T1159) within six months of the end of the tax year. A failure to report this return in a timely manner may result in a harsh penalty. The CRA will reinstate the 25 percent tax rate on the original gross rental income, which will entirely offset all tax benefits.
PPA specializes in helping US non-residents manage their Canadian real estate investment taxes. We ensure your filings are precise and your cash flow is optimized. Join hands with PPA to protect your profits and guarantee full compliance.