What You Should Know About Section 216

When you get rental income from immovable or real property in Canada, the tenant or agent must withhold non-resident tax of 25% on gross rental income credited or paid to you. The tax should be paid on or before 15^th of every month that the rental income is credited or paid. You must ensure that that the payer withhold or remits the right amount of non-resident tax to the CRA on your behalf.  If this non-resident tax is not remitted or withheld, the CRA will charge compound daily interest on the total amount not remitted or withheld. In addition, you may also be charged a penalty on your Tax treaty returns.

The non-resident tax that is withheld is considered as your final tax obligation to Canada for any rental income. However, you can choose to pay less by electing under section 216 of the Income Tax Act. Additionally, you may get a refund of all or some of your non resident tax return withheld if you choose to elect under section 216.

Section 216 Election

If you are a non-resident owing property in Canada, you can opt to send the CRA a separate Canadian tax return that reports your rental income from immovable or real property in Canada. The decision to send the CRA this return is referred to as electing under section 216 of the Income Tax Act. The Income Tax Return for Electing Under Section 216 is different from any other tax return you will send to the CRA for the year. For expats who have rental income from more rental properties in Canada and make an election under section 216, you need to report all your Canadian rental income and expenses on one section 216 return.

Reasons for Electing Under Section 216

When you choose to elect under section 216, you can pay tax on your net Canadian rental income rather than on the gross amount. If the non resident tax return that the payer withheld tends to be more than the actual amount of tax payable on your section 216 return, then the CRA will refund the excess money to you.