Non-Resident Earning Rental Income In Canada

25% of the gross rents are required to be withheld monthly and sent to Canada Revenue Agency (CRA)

If a non-resident elects to file a Canadian tax return they may be able to get a refund.

They may elect to have tax withheld on the net amount. If this is done they will be required to file a Canadian tax return and the agent is responsible to ensure this is filed within the six-month filing deadline. To do this, an estimate of the subsequent year’s net income must be submitted to CRA and approved by December 31. Once approval has been received from CRA, the monthly withholding can be based on the net income, the tax being 25% of this amount. A Canadian tax return must be filed by the tax filing deadline if this approach is chosen.


Non-Resident Sale Of Real Property

Required procedures - Canada Revenue Agency (CRA)

1. The Income Tax Act requires that the purchaser or their representative, generally a lawyer, withhold 25% of the gross proceeds of the sale of the property owned by non-residents.

These funds are to be paid to CRA within 30 days of completion of the sale unless a T2062 has been filed and accepted. A T2062 should be filed with the proposed sale 30 days or as soon as possible. A Notice of Actual Disposition must be sent to CRA by registered mail within 10 days of the completion of the sale if the facts and amounts differ from the T2062 or if no T2062 was filed.

The Income Tax Act requires that payment of 25% of gross proceeds less cost of purchase must accompany the T2062; however, CRA administratively will accept payment once they have reviewed this form.

To calculate the gain, no deductions are allowed such as commissions on sales or legal fees.

2. CRA will review the T2062 and if in agreement and payment has been received they will issue a clearance certificate. The clearance certificate will allow the holder of the original 25% of gross proceeds to release the balance of the funds to the vendor.

3. A personal Canadian tax return can also be filed to claim the costs denied on the T2062 (commission and legal).

4. Once the tax return is assessed, any refund because the T2062 withholding was greater than required by the tax return will be refunded to the taxpayer.

5. The non-resident will have to recognize the sale on their tax return where they reside and will get a foreign tax credit for the amount withheld in Canada if the countries have a tax treaty.

6. If, in error, the T2062 is not filed but a tax return is filed and the balance paid to the International Tax Office, CRA will not issue a clearance certificate. You need to wait for the return to be assessed with no balance owing by the International Tax Department. Send a copy to CRA and if they accept it they will issue a “comfort letter.”

7. If the property being sold is business property the withholding amount will be 50%, not 25%.

8. When a non-resident sells a property in Canada that has been rented and no withholding taxes were paid to CRA, they will charge 25% of the withholding tax based on the gross rent plus interest and penalties for non-payment. They will allow a one-time opportunity to file Canadian tax returns for all years of ownership of the rental property thus reducing your tax owing to taxable income plus interest on the 25% withholding payment not made.

If you have any questions on this subject please e-mail Lorana LaPorte

Also visit:

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