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Question

We live in the US and considering the strength of our dollar against the CAD we are looking to purchase a rental property in Victoria. Can you please outline our tax requirements if we were to purchase the property?

Answer

As a non-resident of Canada earning rental income from Victoria you would be required to remit 25% of the gross rents you receive from your tenant to CRA. You would then be required to file form NR4 to report the withholding and rental income to CRA for each respective year. By June 30th of the following year you would then file a section 216 non-resident income tax return reporting the rental income and expenses from the rental property. You would claim the 25% original remittance reported on the NR4 as taxes already paid for purposes of the tax return.

Any taxes payable on the non-resident income tax return would be available as a foreign tax credit on form 1116 on your 1040 for that particular year. Note that rental property reporting rules for Canada and the US can vary significantly and a qualified cross border tax professional should be consulted before completing each respective tax return.

You also have the opportunity to file form NR6 in order to reduce the required withholdings to 25% of the net estimated rental income. It’s best to file the NR6 before any rental payments are made to ensure you don’t need to continue remitting the full 25% on gross rental income. Once form NR6 is approved by CRA you’ll be able to reduce your withholding to 25% of your estimated net rental income approved by CRA.

As outlined above, a Canadian non-resident tax return will need to be file by June 30th of the following year to report the rental activities regardless of whether the property produced a net profit. This return is filed pursuant to section 216 of the Canadian Income tax act. If withholdings of 25% were required in the year it’s likely that the non-resident return filing will result in a refund of tax for the taxpayer.

If you need help navigating the rules for non-resident Canadian rental properties please don’t hesitate to contact me at 250-381-2400 or via email at phil@hutheson.ca.

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