Renting from a Non-Canadian Tax Resident? You May Have Tax Obligations 

Brian Steeves
Insights
| 11/17/2022
Scenery Key in Door

What many tenants don’t know is there is a specific section of the Income Tax Act indicating that they are responsible to withhold 25% of the rent they pay to non-resident tax residents of Canada.

Crowe MacKay’s tax advisors explain the responsibilities of a tenant whose landlords are not Canadian tax residents and how they can navigate these tax obligations and avoid potential interest charges and penalties.

Most tenants are not familiar with their filing obligations and their responsibility to withhold funds and perform administrative duties, such as filing certain slips and information returns in a timely manner with the CRA. In the Income Tax Act, tenants (or payers) whose landlord is a non-Canadian tax resident should be withholding 25% of the rent they pay. Tenants are also required to open up a special non-resident tax account and send the withholdings to the CRA directly on or before the 15th of the month after the rental income is paid. Failure to make payments on time could result in the tenant being charged a compounded daily interest on the amount that should have been withheld and remitted.

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How do you know if you need to open a non-resident tax account?

If you, as a tenant, have determined that your landlord is a non-Canadian resident you do not need to panic and immediately open a non-resident account. This is especially important if the tenancy agreement you signed with the non-resident landlord is silent on addressing administrative duties and withholding funds. 

As described in the Income Tax Act, where a property manager is collecting rent on behalf of a non-resident landlord it then becomes the responsibility of that person (or company) to address the administrative aspects of rents from non-residents, not the tenants. If there is no property manager involved, and it is silent in the agreement that you, as the tenant, are responsible for the administrative details, including being required to send applicable withholdings to the CRA directly, the administrative duties would fall to the landlord. 

Common Scenarios

Our experts have seen various scenarios involving non-resident landlords. Below they explain three of the most common.

Scenario 1

The landlord collects the full value of the monthly rent and pockets the full amount without sending any withholding to the CRA

The non-resident landlord generally does not understand they have to complete the applicable withholding remittance, as they generally would have included the income on their domestic tax return where they normally file their personal taxes and believe they are doing the correct reporting.

Our experts typically see this scenario arise when the non-resident is selling the Taxable Canadian property and goes to complete a certificate of compliance application for a reduced withholding. In that form, they need to disclose if they rented the property and if they withheld appropriately. At that point, the non-resident wants to become compliant with its unfiled elective non-resident rental returns. Historically, the non-resident has an interest amount due for the unfiled NR4 reporting on their non-resident tax account after the Section 216 returns and Part 1 disposition returns have been processed and the accounts reconciled.

The certificate of compliance process is a whole other process that non-residents should be speaking to their advisors about in both countries. First, they should speak to the advisor in the domestic country they are filing their personal taxes each year and then an advisor in the country where they have a property.

Scenario 2

The non-resident landlord uses a property manager (or another Canadian agent) to collect the rent, submit remittances, and complete administrative duties

We see this fact pattern frequently where a property manager at, for example, a ski hill manages the short term rentals administration of the property on the non-resident’s behalf and is included as part of the management fee charged. The property manager will collect the income, remit the appropriate 25% withholding [or a lessor amount under certain circumstances], and prepares and issues an annual NR4 form to the non-resident. This NR4 form will summarize the amount of gross rental income earned in Canada and the amount of withholding remitted to the CRA. 

**Note that an NR4 form is not used solely for this purpose but for a multitude of different payments. It is important that anytime a taxpayer (individual, corporation, or trust) pays any income to a non-resident that there could be a requirement to file a special slip annually along with diligently withholding the appropriate amount of tax.

See Guide T4061 for more information on the NR4 process

Scenario 3

The landlord submits all remittances to a non-resident tax account they’ve opened and completes the administrative duties themselves before the due dates

Technically, it is not the correct process for the landlord to complete the NR4 annually. The NR4 is to be completed by the payer or the agent of the Income Tax Act. The landlord can be neither of these.

The risk of the non-resident landlord completing the administration of the NR4 filing this way is that CRA adds this to one of their annual matching programs or self-reporting inquiries and sees that the payer and recipient names match, and then takes action accordingly. 

The action, as our experts understand it via multiple discussions with various CRA agents, is that the CRA would deny all of the expenses claimed on the non-resident rental return, or the Section 216 return filed by a non-resident. This would mean that the 25% withholding on the gross income would be the final tax for the non-resident and any reduced tax payable or refund paid to the non-resident would be reversed with interest with a penalty potentially applied.

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What to do if the landlord has completed all non-resident tax account activities

If the non-resident landlord is the property manager who completes all the administrative duties there is a process to follow. It is not published anywhere on the CRA website or in any of the Guides on reporting non-resident rental income; however, the CRA does have an internal guide on this alternative process via the “NR4 ProForma.”

The NR4 Proforma process is similar to the NR4 prepared by the property manager or Canadian agent mentioned in “Scenario 2;” however, the non-resident, or their authorized representative, needs to prepare a written request to the CRA in order to have the NR4 Proforma prepared and it is a cumbersome process.

The details as part of the written request are as follows:

  1. Non-resident name
  2. Social insurance number or tax number
  3. Country of residence
  4. Non-resident account number
  5. Tax year pertaining to request
  6. Address of the Canadian rental property
  7. Non-resident mailing address
  8. Frequency of rental payments (e.g. monthly weekly, quarterly, irregular, other)
  9. Gross rental income by month
  10. Tax remittances by month and the date of payment
  11. Total yearly gross rental income
  12. Total tax remitted for the year

This written request is sent to the Sudbury Tax Centre as follows:

 

Sudbury Tax Centre

Attn: Non-resident Withholding Division

PO Box 20000 Stn A

Sudbury Ontario P3A 5C1

 

The fax number is (705) 677-7712 if that is the preferred route.

This NR4 ProForma summary would then be used in the preparation of the non-resident's Section 216 return, which would be similar to the NR4 process completed by the property manager (or other Canadian agent) and sent along to you on an annual basis in the first three months of the year.

If any of the above scenarios apply to you, start the conversation with your trusted Crowe advisor or connect with one of our local offices.

 

This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.


If you are looking for Tax Services, Crowe MacKay provides personalized support. Our tax professionals will help you maximize tax-planning opportunities and ensure the minimum amount required by law is paid.

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Brian supports a wide variety of clients in many different fields of accounting, taxation, and advisory services for both large and small enterprises in private and not for profit sectors.
Brian Steeves
Brian Steeves
Partner
Kelowna

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