The following information is provided by BDO Canada LLP, a leading provider of professional tax and financial services. If you are a non-resident property owner in Canada, it is essential to understand your tax obligations, including GST, withholding tax, and the impact of personal use on your rental property. This guide outlines key tax considerations and compliance requirements to help you navigate your responsibilities with confidence.

A Guide to Help You Understand Your Rental Property Taxes

Rental property can be a significant source of income. As a non-resident property owner, it is important to understand your responsibility to report that income for tax purposes. This guide outlines general issues surrounding non-resident taxation and answers some of the most common questions property owners typically ask.

Canadian Tax at a Glance

• Tax in Canada is administered by the Canada Revenue Agency (CRA).
• Income tax in Canada is determined based on revenue earned net of tax-deductible expenses. Tax rates can vary:
  • For individuals, rates begin at 22%.
  • For non-resident corporations, rates begin at 25%.
• Sales taxes (GST) and the Underused Housing Tax (UHT) are separate taxes.
• The taxation year runs from January 1 to December 31 for individuals.
• Tax returns are generally due April 30, June 15, or June 30, depending on the type of return.

Non-Resident Withholding Tax

Non-residents earning rental income in Canada are subject to withholding tax, which is collected at the source of payment. The CRA requires that 25% of the gross rental revenue (before any expenses) be remitted as a prepayment of taxes.

If you have a property manager, they are required to withhold and remit this tax on your behalf. If you do not have a property manager or agent, you must remit the 25% tax yourself. This withholding is a prepayment and will usually exceed the actual income tax owed. You may receive a refund when you file your annual tax return. However, if you fail to file the required return on time, the CRA will keep the full amount of prepaid tax.

Reducing the Withholding Tax

You can reduce withholding tax on Section 216 rental properties by filing an NR6 election. This requires a joint submission between you and a Canadian agent (such as a property manager) and must be approved by the CRA.

• The NR6 election should be filed when you purchase the property and annually before the tax year begins.
• BDO typically prepares NR6 elections in September and October each year.

Important Terminology

NR6 Election

• This is an application to the CRA providing an estimate of revenue and expenses for the year.
• If approved, the withholding tax is reduced to 25% of net income instead of gross income.

NR4 Slip

• Issued annually to report the gross income and withholding tax paid.
• Must be attached to your income tax return to claim prepaid taxes and any potential refund.
• Must be issued by your property manager by March 31.

Section 216 Property

• The majority of rental properties in Canada require a Section 216 tax return.

Section 115 Property

• A property generating business income requires a Section 115 return (e.g., properties operated as a hotel).

Underused Housing Tax (UHT)

• An annual federal tax assessed on the fair market value of a property.
• Generally applies to non-residents who own residential properties in Canada, regardless of usage.

When Are Tax Returns Due?

• If you owe taxes, payments are due April 30, even if your tax return is due later.
• UHT returns and payments (if applicable) are due April 30.
• If you have an NR6 election in place, your taxes are due June 30.
• If you own a Section 216 property without an NR6 election, you have up to two years to file—after which you may lose eligibility for a tax refund.
• Most GST returns are due March 31.
• Late filings result in interest and penalties.

Goods and Services Tax (GST)

GST is a 5% sales tax applied to most goods and services, including short-term rental accommodation.

If you rent your property on a nightly basis, you may be required to register for GST and either claim a refund or defer payment on expenses related to your rental property. This includes GST payable on the property purchase.

• If you intend to use your property for personal use, even occasionally, your eligibility for GST deferrals may be reduced or eliminated.
• Consult BDO’s Whistler office to determine whether GST registration is appropriate for your situation.

What Information Do I Need to File My Tax Returns?

• Revenue and expense statements from your property manager.
• NR4 slip (prepared by your property manager).
• Rental income from private bookings.
• Tourism Whistler dues (if the property is in Whistler).
• Insurance fees, strata fees, mortgage interest (obtain a copy of your bank’s mortgage interest statement).
• Invoices for repairs and maintenance.
• Utility bills.
• Municipal property taxes (Resort Municipality of Whistler, if applicable).
• The number of days your property was used for personal purposes.

What Happens When a Property Is Sold?

When selling your property, a prepayment of 25% (increasing to 35% as of January 1, 2025) of the total capital gainmust be submitted with a T2062 application to the CRA within 10 days of the sale.

• Legal counsel must hold back 25% to 50% of sale proceeds in trust until the CRA approves the T2062 application and receives payment.
• The CRA requires documentation to support the original cost of the property to avoid unnecessary capital gains tax.

Required Documentation for a Property Sale

• Purchase documents (buyer statement of adjustments, assignment documents).
• Invoices for capital improvements sold with the property.
• Canadian customs documents for imported goods (request from Canada Border Services Agency when importing).
• Previous tax returns and capital cost allowance records.

---

The information in this publication is current as of November 2024. It is provided as broad guidance and does not replace professional tax advice. Consult BDO Canada LLP for specific recommendations based on your circumstances.

For More Information, Contact:

Kim Huggard, CPA, CGA
Partner, Business Services & Outsourcing
📞 778-947-1189
✉️ khuggard@bdo.ca

Joanna Dubowska
Team Lead, Financial Reporting & Insights
📞 778-947-1210
✉️ jdubowska@bdo.ca

Sarah Douville
Senior Associate, Financial Reporting & Insights
📞 778-947-1209
✉️ sdouville@bdo.ca

BDO Whistler Office
📍 202-1200 Alpha Lake Road, Whistler, BC, V8E 0H6
📞 604-932-3799

🌐 www.bdo.ca

About BDO Canada LLP
BDO is a leading provider of professional services, delivering expertise in assurance & accounting, tax, and advisory services. With over 100 years of experience and a strong presence in local communities across Canada, BDO offers customized support to individuals and businesses navigating complex financial landscapes.