If you have retained a rental property in Canada while becoming a non resident, Part XIII of the Income Tax Act levies a 25% withholding tax from the gross income from rentals.

Section 216 Election (Canada)

The purpose of section 216 is to extend to non-resident persons the privilege of paying tax on their net income derived from the rental of real property in Canada  instead of being subject to the flat rate of withholding tax normally required to be deducted at the source from the gross amount.

Application:

A non-resident recipient of real property rentals  from a Canadian source is normally subject to a flat rate of withholding tax. That tax is payable on the gross amount of rent or royalties that the non-resident is entitled to, without any deduction for expenses or depreciation.

Through the workings of  subsection 216(1), however, the non-resident may choose to file an income tax return as if the non-resident had been a resident of Canada in the taxation year in which the rent or royalties were received and as if that income were the only income the recipient had that was taxable under Part I of the Act. If this alternative method is chosen, the following conditions apply:

1. The non-resident must file the required return within two years after the end of the year in which the income in question was received (the alternative method will be forfeited if the return is not filed within that two-year interval);
2. For taxation years ending after July 13, 1990, where the non-resident has made an undertaking  on Form NR6 to file a Part I return within 6 months after the end of the taxation year, the return must be filed within that 6-month period;
3. The non-resident may not claim exemption by reason of being a non-profit corporation;
4. The special return required by section 216 must reflect all rental income derived from real property in Canada in the year  and such a return in no way affects a regular return which the non-resident may also be required to file for the same year by reason of being employed in Canada in the year or carrying on business in Canada;
5. There may be claimed as deductions from the income in question capital cost allowance  and all other expenses incurred for the purpose of earning that income;
6. None of the deductions from income normally allowable in determining taxable income may be claimed (ie no deduction may be taken for charitable donations, business losses;
7. None of the tax credits  (eg, personal tax credits, medical expense credit) may be claimed;
8. Amounts of tax that had been deducted at the source and remitted to the Receiver General as non resident withholding tax  will be treated as payments on account of the non-resident's tax;
9. The regular provisions found in the Act regarding payment of tax will apply.

The result - likely more than one return in the year and lower overall taxes.

CREATIVE SOLUTIONS TO CROSS BORDER TAX ISSUES

Mark T. Serbinski  Certified Public Accountants and Serbinski Partners PC, Chartered Accountants specialize in situations involving the taxation of U.S. citizens living abroad and Canadians living or working in the United States.   Please contact us for a complimentary initial review of your particular situation on a confidential basis. 

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