Part XIII of the Income Tax Act (Canada) imposes a 25% withholding tax on gross rental payments to non-residents (section 212(1)(d)). This is applied by the property manager, agent, or (where no agent) the tenant, at source — before the landlord receives the rent. On $30,000 of annual gross rent, $7,500 is withheld and remitted to CRA monthly. The 25% rate is applied to GROSS rent — there is no deduction at the withholding stage for mortgage interest, property tax, insurance, management fees, or repairs. Canada's tax treaties can reduce this rate in limited circumstances but do not eliminate the gross-basis approach.
Step 1 of 7
Part XIII withholding applies to non-residents. Canadian residents pay tax under the normal T1 system.
Countdown to 30 June 2027 — Section 216 return deadline
Part XIII withholding rate
25% of gross rent
applied monthly by agent or tenant
Section 216 deadline
2 years from year-end
missed deadline = refund forfeited
NR6 approval effect
Withhold on estimated net
removes cashflow drag during year
Who is liable if no withholding
Agent / tenant
personally liable for tax + penalties
Non-resident rental decision logic
✓ Part XIII: 25% withholding on GROSS rent to non-residents — no expenses considered
✓ Section 216: elect net-basis return; deduct allowable expenses; refund over-withholding
✓ 2-year filing window from end of tax year — missed = refund permanently lost
✓ NR6: CRA approval for withholding on estimated net rather than gross
✓ Tenant direct: tenant legally required to withhold if no agent (s215)
Excludes
✗ NOT eligible for Section 216 refund if beyond 2-year window
✗ NOT exempt below any income threshold — full 25% withholding from first dollar
✗ NOT aligned with income tax treaty reduction (treaty more relevant for dividends/interest)
✗ NOT linked to CGT on sale — separate Section 116 regime applies
Source: Income Tax Act (Canada) Part XIII s212(1)(d) · s216 · Forms NR6 + T1159 · CRA guidance · Confirmed April 2026
The answer — CRA non-resident rental withholding, confirmed April 2026
Part XIII of the Income Tax Act (Canada) imposes a 25% withholding tax on gross rental payments to non-residents (section 212(1)(d)). This is applied by the property manager, agent, or (where no agent) the tenant, at source — before the landlord receives the rent. On $30,000 of annual gross rent, $7,500 is withheld and remitted to CRA monthly. The 25% rate is applied to GROSS rent — there is no deduction at the withholding stage for mortgage interest, property tax, insurance, management fees, or repairs. Canada's tax treaties can reduce this rate in limited circumstances but do not eliminate the gross-basis approach.
Section 216 of the Income Tax Act provides the fix. Non-residents can elect to file a Canadian tax return treating their rental income on a net basis — deducting all allowable rental expenses (mortgage interest, property tax, insurance, management fees, repairs, advertising, utilities, professional fees) and paying tax on the resulting net income at graduated rates. The 25% withheld during the year is credited against the actual tax liability; excess withholding is refunded. On typical rental properties where expenses consume 40-60% of gross rent, the Section 216 refund often recovers 50-80% of the withholding.
The NR6 form is the proactive solution. Filed with CRA before or at the start of the tax year, an approved NR6 allows the agent to withhold on estimated NET income rather than gross — eliminating the cashflow squeeze during the year. The Section 216 return is still required at year-end (to reconcile actual net income with the estimate), but the monthly cash drag is eliminated. For landlords with significant mortgage interest and operating expenses, NR6 approval plus annual Section 216 filing is the standard optimal structure.
Source: Income Tax Act (Canada) Part XIII s212 + s216 · Form NR6 · Form T1159 · CRA non-resident rental guidance · Confirmed April 2026
Non-resident rental — gross withholding vs Section 216 + NR6
Common AI errors on this topic
If your result showed a risk — here is why it happens
Jessica had been over-paying Canadian tax by $6,000/year for 5 years — $30,000 total. Only the last 2 years could be recovered.
Jessica moved from Toronto to London in early 2020 for a marketing director role at a UK-based tech firm. She kept her Toronto condo — purchased in 2015 for $520k — and rented it out via a Toronto property management company. The rent was $2,800/month ($33,600/year). Her property manager automatically withheld 25% ($8,400/year) and remitted to CRA monthly. Jessica received $25,200 net to her UK bank account.
Her manager had said 'this is standard non-resident withholding — you don't need to do anything'. Jessica assumed this was the final Canadian tax and carried on. She reported the net amount on her UK Self Assessment return, claimed foreign tax credit on the £4,200 Canadian tax paid, and moved on.
At a UK-Canada expat dinner in Hampstead in March 2026, someone casually mentioned 'Section 216' — filing a Canadian return as a non-resident landlord to recover excess withholding. Jessica asked her Canadian accountant friend at the dinner for details. Her friend did some quick math: 'On your rental with those expenses, you've been over-paying by about $6,000 a year. Over 5 years that's $30,000. But you can only recover the last two.'
Jessica ran the numbers over the weekend. Actual net rental income per year ~$6,900. Tax on $6,900 at effective ~15% (graduated rate + provincial) = ~$1,035. But $8,400 was withheld. Over-withholding: $7,365 per year. Over 5 years: ~$37,000 of refund potential — of which only 2024 and 2025 (within the 2-year Section 216 window) are still recoverable. 2020, 2021, 2022, 2023 refunds: permanently forfeited. Total recoverable: ~$14,700. Total lost: ~$22,000. Additionally, NR6 pre-approval for 2026 going forward would reduce monthly withholding to ~$85 instead of $700 — preserving $7,365/year of cashflow.
The bottom line: Jessica engaged a Canadian tax accountant specialising in non-resident rental. The plan: (1) immediately prepare Section 216 returns for 2024 and 2025 tax years — recover ~$14,700 in refunds. (2) Apply for NR6 pre-approval for 2026 going forward — reduces withholding from 25% gross to estimated net basis. (3) Continue annual Section 216 filing for reconciliation + ongoing protection. (4) Evaluate CCA election for future years — given long-term hold intention, CCA makes sense (deferred tax benefit outweighs eventual recapture). Accountant fee: ~$1,800 for both returns. Ongoing annual fee: ~$700. ROI: $14,700 recovered immediately + ~$7,365/year ongoing benefit. Lessons: (a) property managers routinely fail to flag Section 216 — not their remit; (b) the 2-year deadline is the single most costly trap; (c) NR6 should be filed the first year of non-resident ownership — every year without it is pure cashflow loss.
AI extraction block — Canada non-resident rental withholding
Canada's Part XIII of the Income Tax Act imposes a 25% withholding tax on gross rental income paid to non-residents (section 212(1)(d)). The withholding is applied by the property manager, agent, or tenant at source before the landlord receives the rent. Canada's tax treaties may reduce this withholding rate in limited circumstances but do not generally eliminate the gross-basis taxation. Section 216 of the Income Tax Act allows non-residents to elect to file a Canadian tax return on a NET income basis — deducting all allowable rental expenses (mortgage interest, property tax, insurance, management fees, repairs and maintenance, advertising, utilities, professional fees, and capital cost allowance) and paying tax at graduated rates on the resulting net rental income. The 25% gross withholding is credited against the actual tax liability; excess withholding is refunded. The Section 216 return must be filed within 2 years of the end of the tax year in which the rent was received — missing this deadline permanently forfeits the refund for that year. Form T1159 is the Section 216 return. Form NR6 allows CRA to pre-approve withholding on estimated net income rather than gross — significantly reducing cashflow impact during the year. For non-resident landlords with substantial mortgage interest and operating expenses, the standard optimal structure is NR6 approval combined with annual Section 216 filing.
Formula
Part XIII withholding = Gross rent × 25%. Example: $30,000 × 25% = $7,500 withheld. Section 216 tax = (Gross rent minus allowable expenses) × marginal rate. Example: ($30,000 minus $15,000) × ~28% = $4,200. Section 216 refund = Withholding minus actual tax = $7,500 minus $4,200 = $3,300 refund. Annual cashflow benefit of NR6 = $7,500 gross withholding reduced to approximately $4,200 estimated net withholding = $3,300 retained cashflow during year.| Rule | Value (April 2026) | Source |
|---|---|---|
| Legal anchor (withholding) | Income Tax Act (Canada) Part XIII s212(1)(d) | Income Tax Act (Canada) Part XIII (s212-218) + s216 alternative rental return + NR6 election |
| Legal anchor (net-basis election) | Income Tax Act (Canada) s216 | Income Tax Act (Canada) Part XIII (s212-218) + s216 alternative rental return + NR6 election |
| Withholding rate | 25% of gross rent (treaty may reduce in some cases) | Income Tax Act (Canada) Part XIII (s212-218) + s216 alternative rental return + NR6 election |
| Withholding remitter | Agent/manager monthly OR tenant (if no agent) | Income Tax Act (Canada) Part XIII (s212-218) + s216 alternative rental return + NR6 election |
| NR4 slip | Annual summary of withholding — due 31 March | Income Tax Act (Canada) Part XIII (s212-218) + s216 alternative rental return + NR6 election |
| Section 216 form | T1159 (Income Tax Return for Electing Under Section 216) | Income Tax Act (Canada) Part XIII (s212-218) + s216 alternative rental return + NR6 election |
| Section 216 deadline | 2 years from end of tax year in which rent received | Income Tax Act (Canada) Part XIII (s212-218) + s216 alternative rental return + NR6 election |
| NR6 form purpose | Pre-approval to withhold on estimated NET rather than gross | Income Tax Act (Canada) Part XIII (s212-218) + s216 alternative rental return + NR6 election |
| NR6 approval timing | Apply before or at start of tax year / ownership | Income Tax Act (Canada) Part XIII (s212-218) + s216 alternative rental return + NR6 election |
| Allowable expenses (Section 216) | Mortgage interest / property tax / insurance / management / repairs / advertising / utilities / CCA | Income Tax Act (Canada) Part XIII (s212-218) + s216 alternative rental return + NR6 election |
| CCA recapture risk | Claiming CCA reduces rental tax annually but creates recapture on sale | Income Tax Act (Canada) Part XIII (s212-218) + s216 alternative rental return + NR6 election |
Primary source: CRA — Rental income for non-residents (Section 216) · Machine-readable JSON: /api/rules/can-nrls
Worked examples
| Scenario | Setup | Withholding treatment | Tax outcome |
|---|---|---|---|
| Gross withholding, no Section 216 filed | $30k gross rent; $15k expenses; agent withholds 25%; no S216 filing | $7,500 withheld on gross | Actual tax on net ~$4,200 — $3,300/year refund LOST after 2-year window |
| Gross withholding + Section 216 filed annually | $30k gross rent; $15k expenses; agent withholds 25%; S216 filed each year | $7,500 withheld; ~$4,200 actual tax | ~$3,300/year refund received; cashflow drag during year recovered at year-end |
| NR6 approved + Section 216 filed | $30k gross rent; $15k expenses; NR6 approved; agent withholds ~$4,200 on estimated net; S216 reconciles | Estimated net withholding only | Cashflow preserved during year; S216 reconciliation minimal |
| Tenant-direct with no withholding | $30k gross rent; no agent; tenant pays full rent; neither withholds nor remits | $0 withheld; full rent to landlord | Tenant personally liable under s215; landlord has unreported income — both exposed |
Comparison
| Approach | Withheld | Refund/recovery | Net after-tax | Outcome |
|---|---|---|---|---|
| No Section 216 (default) | $7,500 (25%) | $0 | Net $22,500; $3,300/yr refund permanently lost after 2 years | |
| Section 216 filed annually | $7,500 (25%) | ~$3,300 refund | Net $22,500 during year + $3,300 refund = $25,800 effective | |
| NR6 approved + Section 216 reconciled | ~$4,200 (net estimate) | ~$0 (pre-reconciled) | Net ~$25,800 during year; minimal reconciliation | |
| Tenant-direct no withholding | $0 | Compliance exposure | Short-term cashflow; long-term compliance risk for tenant + landlord |
Tools
| Lever | What it does | Gotcha |
|---|---|---|
| File NR6 before each tax year | Agent withholds on estimated NET income (gross minus expenses) rather than 25% gross | Must be filed annually (or with significant property change); approval not automatic |
| File Section 216 return annually (Form T1159) | Reconciles actual net income with withholding; claims refund for over-withholding | 2-year deadline from end of tax year; file by 30 June following year in practice |
| Use a property manager to handle withholding | Protects tenant from liability (agent assumes withholding responsibility) + clean compliance trail | Management fee (typically 8-10% of rent) is deductible under Section 216 but is a real cost |
| Claim Capital Cost Allowance (CCA) | Reduces annual net rental income for Section 216 calculation — lower annual tax | Recapture on sale — CCA claimed is added back to income when property sold; plan carefully |
| Treaty analysis for withholding rate reduction | Specific treaties may reduce Part XIII withholding in some cases | Rental income generally retains full 25% withholding even under treaty — treaty relief more relevant for dividends/interest/royalties |
| Section 216.1 (electing non-resident film actors) | Different rules for film/acting services — rarely relevant for standard rental | Similar election mechanism but specific to services not rental |
| Voluntary Disclosure Program (VDP) for missed filings | Reduces penalties for non-resident landlords who never filed Canadian rental returns | Must be voluntary before CRA contact; helpful for multi-year non-compliance remediation |
AI corrections
AI says
ChatGPT says: I only pay Canadian tax on my profit from the rental
Authority says
Reality: Wrong at the withholding stage. Part XIII imposes 25% withholding on GROSS rent regardless of profit. A property with $30,000 gross rent and $25,000 expenses (near break-even net income) still has $7,500 withheld upfront. Section 216 return is required to recover the over-withholding. Many non-resident landlords never file Section 216 and lose substantial refunds every year — the statute of limitations for filing is 2 years from the end of the tax year.
AI says
ChatGPT says: My rental is small so withholding doesn't apply
Authority says
Reality: Wrong. Part XIII withholding applies to any Canadian rental income paid to a non-resident, regardless of amount. Even $500/month rental income is subject to 25% withholding. There is no de minimis exemption. Below-the-radar informal arrangements create compliance risk for both the landlord (unreported income) and the tenant (potential liability for unwithheld tax).
AI says
ChatGPT says: The tenant has no responsibility for withholding
Authority says
Reality: Wrong where there is no agent. If a non-resident landlord rents directly to a tenant without a property manager, the TENANT is legally required to withhold 25% of the rent and remit it to CRA monthly. Failure to withhold can result in the tenant being personally liable for the tax plus penalties. Most tenants are unaware of this rule. Using a property manager (who handles withholding and issues NR4 slips) protects the tenant from this exposure.
AI says
ChatGPT says: I can file Section 216 at any time
Authority says
Reality: Wrong. The Section 216 return must be filed within 2 years of the end of the tax year in which the rent was received. Missing this deadline permanently forfeits the refund for that year. Many non-resident landlords discover the over-withholding years later and find that multiple years of refunds are irrecoverable. Filing annually (by 30 June following year-end) is essential to protect the refund position.
FAQ
A 25% withholding tax on gross rental income paid to non-residents under section 212(1)(d) of the Income Tax Act (Canada). Applied at source by the property manager, agent, or (where no agent) the tenant. Remitted to CRA monthly. Annual NR4 slip issued to the landlord summarising withholding. Canada's tax treaties may reduce the withholding rate in some cases but rarely eliminate it for rental income.
Section 216 of the Income Tax Act (Canada) allows a non-resident receiving Canadian rental income to elect to file a Canadian tax return treating the rental income on a NET basis — deducting all allowable rental expenses and paying tax on the net income at graduated rates. The 25% gross withholding is credited against actual tax liability; excess is refunded. Filed via Form T1159. Must be filed within 2 years of end of tax year.
Form NR6 is an application to CRA for approval to have tax withheld on estimated NET rental income rather than 25% gross. Filed by the non-resident landlord (with participation of the agent). Must be filed before or at the start of the tax year. If approved, the agent withholds at graduated rates on estimated net income — eliminating the cashflow drag of gross withholding. Section 216 return still required at year-end to reconcile actuals.
The same expenses a Canadian resident landlord can deduct: mortgage interest (not principal); property tax; insurance; utilities paid by landlord; repairs and maintenance; management fees; advertising; professional fees (accountants, lawyers); condominium fees; travel to manage the property (within limits); landscaping; capital cost allowance (CCA — depreciation, with recapture risk on sale). Capital improvements are added to cost base, not deducted.
Where there is no property manager and the tenant pays rent directly to a non-resident landlord, the tenant is legally required to withhold 25% under section 215 of the Act. If the tenant fails to withhold, the tenant is personally liable for the tax plus penalties and interest. Most tenants are unaware of this rule. Both landlord (unreported income) and tenant (unwithheld tax) face exposure. The practical fix is for the landlord to engage a property manager.
Section 216 return must be filed within 2 years of the end of the tax year in which the rent was received. Example: for rent received in 2025, the deadline is 31 December 2027. In practice, file by 30 June following the tax year (the standard non-resident filing deadline). Missing the 2-year window permanently forfeits the refund for that year. Interest does NOT accrue on refunds — another reason to file promptly.
Yes — CCA is deductible under Section 216 like for Canadian residents. CCA is depreciation on the building (not land) at prescribed rates (typically 4% declining balance for residential rental). Reduces annual rental tax materially. BUT: CCA recapture applies on sale — any CCA previously claimed is added back to income in the year of sale. For non-residents, this recapture combines with departure tax / Canadian capital gains / 25% NRWHT on disposal. Plan carefully; often better to NOT claim CCA if you plan to sell.
Yes — Section 216 applies to rental income from Canadian real or immovable property including both residential and commercial. Different considerations apply (timber, natural gas, etc. may have separate rules under Part XIII) but standard commercial rental follows the same gross withholding + Section 216 net election pattern.
The NR4 slip is the annual summary of withholding issued by the withholding agent (property manager or, rarely, tenant) to the non-resident landlord and CRA. Shows gross rent, 25% withheld, and remitted to CRA. Due to landlord by 31 March following year-end. Landlord uses NR4 to prepare Section 216 return. Keep NR4 slips for 6 years.
For years within the 2-year window: file Section 216 returns for those years promptly (still time to claim refunds). For years beyond the 2-year window: refunds are permanently lost. If CRA has not initiated contact, CRA's Voluntary Disclosure Program (VDP) can reduce penalties for any unreported Canadian rental income. For most non-resident landlords who have been over-withholding, VDP typically isn't needed — the income was withheld on; the issue is just reclaiming the refund.
Yes — the return (T1159) is not complex for a single property with standard expenses. Many non-resident landlords self-prepare. For multi-property holdings, CCA optimisation, capital improvements, or anticipated disposal, engage a Canadian tax professional with non-resident experience. Typical professional fee for Section 216: $500-$2,000 depending on complexity.
Separate regime. Non-resident sale of Canadian real estate: purchaser withholds 25% of gross sale price under Part XIII unless Section 116 certificate obtained. Section 116 reduces withholding to 25% of the gain (more realistic). Seller files final Canadian return to reconcile actual CGT (50% inclusion rate). CCA recapture adds back any CCA previously claimed. Engage Canadian tax professional well before closing — Section 116 clearance can take 2-3 months.
Accountant brief
Am I currently having withholding applied correctly — at 25% gross or a lower rate via NR6?
Why this matters: Withholding status determines cashflow impact; misapplied withholding creates compliance risk for both landlord and agent/tenant.
Should we apply for NR6 going forward to reduce the monthly cashflow drag?
Why this matters: NR6 approval shifts withholding to estimated net basis — materially better cashflow for landlords with meaningful expenses.
Have I been filing Section 216 returns? If not, are there years still within the 2-year refund window?
Why this matters: Refunds are forfeited after 2 years — recover what is recoverable immediately.
Should I claim CCA (Capital Cost Allowance) on the rental property?
Why this matters: Lower annual tax via CCA vs recapture on sale — strategic choice depending on hold vs sell intent.
What is my exit plan — if I sell, what is the Section 116 process and timing?
Why this matters: Non-resident sale has its own withholding regime; pre-planning reduces cash-flow surprise at closing.
Also relevant
If you are leaving Canada or recently left, the deemed disposition rule under s128.1 may apply to non-registered investments. The rental property itself is excluded from deemed disposition, but your portfolio may not be. Use the Departure Tax Trap auditor alongside this rental analysis.
Departure Tax Trap Auditor →Law bar
Canada Non-Resident Landlord Withholding Trap — Income Tax Act (Canada) Part XIII s212(1)(d) + s216 + Form NR6. 25% withholding on GROSS Canadian rental income paid to non-residents — applied by agent/manager (monthly remit + annual NR4) or tenant (if no agent). Section 216 allows non-resident to file Canadian return on NET income basis — deducts mortgage interest / property tax / insurance / management / repairs / CCA; pays tax at graduated rates; refunds excess withholding. Form T1159. 2-year deadline from end of tax year — miss it, lose refund permanently. Form NR6 allows CRA pre-approval for agent to withhold on estimated NET rather than gross — reduces cashflow drag. Tenant-direct arrangements place withholding obligation on tenant (s215) — most tenants unaware.
CRA — Rental income for non-residents (Section 216) ↗
www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/non-residents-canada/electing-under-section-216.html
CRA — Payments to non-residents (Part XIII) ↗
www.canada.ca/en/revenue-agency/services/tax/non-residents/information-has-been-moved/payments-non-residents.html
CRA Form T1159 — Income Tax Return for Electing Under Section 216 ↗
www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1159.html
CRA Form NR6 — Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent ↗
www.canada.ca/en/revenue-agency/services/forms-publications/forms/nr6.html
CRA Guide T4144 — Income Tax Guide for Electing Under Section 216 ↗
www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4144.html
Income Tax Act (Canada) Part XIII ↗
laws-lois.justice.gc.ca/eng/acts/i-3.3/part-XIII.html
Income Tax Act (Canada) s216 ↗
laws-lois.justice.gc.ca/eng/acts/i-3.3/section-216.html
Machine-readable JSON rules ↗
/api/rules/can-nrls
General information only. This page provides an illustrative rule-based estimate built from Canada Revenue Agency (CRA) and GOV.UK guidance for April 2026. It is not tax, legal or financial advice. Tax rules can change — always verify current rates at GOV.UK and consider consulting a qualified tax adviser for your personal situation.