Income Tax Return for Electing Under Section 216

The following article is a case study on a non-resident of Canada taxpayer, named Cameron, and how he should deal with his Canadian rental property for tax purposes.

Facts about Cameron’s tax situation:

  • Receives $3,000 monthly rental income from his beautiful home in Vancouver.
  • Loves warm weather and is retired, so decided to move to Columbia and sever ties with Canada. This is the 1st time he has had to file a tax return, since leaving Canada.
  • Permanently resides in Columbia and no longer has residential ties with Canada.
  • Argento CPA was Cameron’s accountant when he lived in Vancouver, so we advised him on how to handle his Vancouver rental property for tax purposes.

Our conversation with Cameron went something like this.

“Cameron, since you are a non-resident of Canada, you are permitted to elect under section 216 to report your Vancouver rental property to CRA.”

“What is section 216?”

“It’s a simplified tax return where you can simply report your rental income and expenses to CRA.”

“Great!  What information do you need from me?”

“We need you to fill out our rental income and expense template, and to know what your gross rental income is and itemize all your expenses, such as mortgage interest, property tax, utilities, etc.”

“Awesome, no problem.”

“You should also remit 25% of the gross rental income to CRA, 15 days after the receipt of each rental payment.”

“What!  25% That is crazy.  Why do I have to remit 25% of gross rental income when I have expenses that make me incur little to no net income by the end of the year?  To me that sounds unfair.”

“I agree with you!  There is a solution for someone in your situation.  You can file a Form called NR6 on or before January 1st each year or before your 1st rental payment for the calendar year is due.”

“Another form?  Great…  What does this one do?

“I know you hate filing forms Cameron, but this is a really good one.  If you file a NR6 on time, you don’t need to remit the 25% withholding tax in your situation because your net rental income is expected to be nil!”

“Wow, that is an amazing form.  I don’t want to be late with that one, and I am glad we had this discussion before I received my 1st rental payment.  What would have happened if we did not file that form!  I would have over paid taxes, wouldn’t I?

“Not necessarily Cameron, if you didn’t file a timely NR6, you should file another form, called NR4, which isn’t as great as the NR6, since all you do with this form is report the total 25% withholdings you paid to CRA during the year.  But you don’t need to do that, because we are filing your NR6 on time and you will have no withholding taxes to pay!”

“Phew, I am so thankful to have an awesome accountant who can share these little tips and tricks with me.  I could have significantly overpaid tax!  25% to report on that NR4, that’s just crazy.”

“Well, it’s not all lost if you had filed a NR4 Cameron.  When we prepare the tax return electing under section 216, we still report your income and expenses, and you only pay tax on the net income.  So, at the end of the day, you would have received a refund of most of your withholding tax, if you had little to no net income.”

“Oh, well that’s not the end of the world then.  It would have hurt a little bit for my cash flow, but I think I would have still managed.”

“Yea, not the end of the world at all Cameron.  But its important people know about this.  If you do not file a NR6, or withhold 25% and remit to CRA, then you can have a penalty equal to 10% of the withholding amount!  That penalty adds up quick and gets compounded!  Make sure to tell your friends about this, I hate seeing people waste money on penalties and interest.”

“Will do!  Thank you so much for being such an informative accountant!”

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.