If you’re a Canadian or U.S. citizen living abroad, working abroad, or with investments or real estate in a country other than your own, our team of specialized tax accountants can answer your questions about your expatriate, cross-border or non-resident income tax filing obligations.
Citizen Abroad Tax Advisors has been providing expert guidance and advice to expatriates for more than 40 years. In that time we’ve come to know the most common cross-border and non-resident income tax questions have when they’re working or living in the United States, Canada or overseas.
Find your tax question among the categories below:
Non Residential Rental Return Frequently Asked Questions
I don’t live in Canada but I am considering buying a residential investment property in Canada. What are the tax considerations?
With the understanding that you are not considered a resident (for tax purposes) of Canada, your property manager or a Canadian resident agent will have to withhold non-resident tax at the rate of 25 percent on the gross rental income collected on your behalf. This is a tax that must be sent monthly to the Canada Revenue Agency (CRA) and is refundable only if your tax is computed to be less on the filing of a tax return with CRA.
Many of our clients find their own tenants and do not use a formal property manager. As non-residents, they must appoint a Canadian resident to act as an agent on their behalf—often a family member or friend. Because there are significant responsibilities with this role, Citizen Abroad Tax Advisors can help you understand them to ensure your agent meets his or her obligations.
You can have the 25 percent gross rental income tax reduced throughout the year by filing a ‘budget’ for the rental property with the Canada Revenue Agency (CRA). The budget is submitted with Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real Property, which is signed by you and your agent or property manager and then sent to CRA for approval.
Form NR6 is your notice to CRA that you are choosing to file a tax return annually under Section 216 of the Income Tax Act. Until you receive approval from CRA, your property manager or agent must withhold tax on the gross rental income. Once approved, your property manager or agent can withhold non-resident tax at the rate of 25 percent on the net rental income, which, if you expect a loss, would be zero withholding. It should be noted that Form NR6 has an annual filing requirement.
Form NR4, which is an annual reporting statement of rents collected and tax withheld, must also be filed by your agent or property manager each year.
Finally, if you are a non-resident property owner you will also have a tax filing requirement for your rental property on or within six months of the end of the calendar year (if NR6 filed) or within 24 months of the end of the calendar year (if 25% tax is withheld). This is a separate and distinct tax return (commonly referred to as a ‘Section 216’ tax return). If it is not filed timely, CRA will almost certainly assess non-resident tax of 25 percent on your gross rental income. While this return is due in June, any tax owing must be paid on or before April 30, otherwise interest will be assessed.
I am selling my rental property in Canada. I have never resided in this property. Although I was a prior resident of Canada, I left many years ago and have been filing non-resident rental tax returns annually. Is there anything I need to do for Canadian tax purposes?
As a non-resident of Canada disposing of a rental property, you will need to advise the Canada Revenue Agency (CRA) of the sale by completing Form T2062, Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property, no later than 10 days after the property is sold. Additional documents will also need to be forwarded to CRA along with Form T2062, including your original purchase and sales agreements.
With the Certificate of Compliance, your real estate lawyer will be required to withhold non-resident tax of 25 percent of the net gain on the sale. Without the certificate, not only will there be a requirement to withhold 25 percent of the gross proceeds but you will also be subject to a penalty of $25 per day to a maximum of $2,500 for failure to file.
Finally, you will be required to file a T1 tax return by April 30 of the year following the sale, disclosing the gross proceeds, the original purchase amount and additional outlays or expenses related to the sale. You will also need to include Copy 2 of Form T2068 with your tax return.
My spouse and I just purchased a condo in Florida. We expect to spend only two or three weeks at the condo each year and may have our family use it for a couple more weeks during the year. The condo will be available for rent in a rental pool for the remainder of the year. Because the condo operates at a loss annually, do we still need to file a U.S. tax return?
Yes. If you have collected or been credited for rents on your condo, you are likely required to complete a U.S. non-resident income tax return. Additionally, the rental income/loss should be reported on your Canadian tax return. Depending on the amount of rental use versus personal use, you will be required to prorate your expenses between rental and personal—and may be limited in the amount of loss you can claim on both your U.S. and Canadian tax returns.
We are selling the vacation condo we have owned in California since 2002. We have never rented the condo out, using it only for personal purposes. Is it true that we will lose 15 percent of the selling price to U.S. federal tax and potentially more to California state tax?
The U.S. Foreign Investment in Real Property Tax Act (FIRPTA) is a federal tax law that requires the purchaser (or the purchaser’s agent) to withhold a 15 percent tax on the proceeds (i.e., selling price) of any foreign person’s sale of U.S. real estate. If the sale price of the property you are selling is more than $300,000, the 15 percent federal tax will apply unless you request a reduction from the IRS (i.e., ask that the withholding apply to the net gain only). It is important to note that the 15 percent tax is not a final tax and a U.S. individual income tax return should also be filed to report your final gain or loss.
If the sale price of the property is less than $300,000 and the purchaser intends to reside at the property, there may be an exception to the 15 percent withholding under FIRPTA.
You must also report the disposition on your Canadian income tax return and determine whether you will be claiming any exemption for any or all of the taxable gain for Canadian purposes (if you are eligible). Any U.S. tax paid would be creditable against Canadian tax otherwise payable on the U.S. gain through the foreign tax credit mechanism in Canada, which should give you a credit for the lesser of the U.S. federal/state tax paid or the Canadian tax actually owing on the same transaction.