Section 216 vs. the 25% Withholding: Which Should a Non-Resident Landlord File?

A non-resident of Canada with Canadian rental property has two ways the income can be taxed:

• The default — 25% Part XIII on gross rent. The payer (your Canadian property manager or resident agent) withholds 25% of the gross rent and remits it to CRA. That is the end of your Canadian tax obligation — but it ignores mortgage interest, property tax, insurance, repairs, and management fees entirely. Do nothing, and this is what happens.
• The election — Section 216 on net income. You file a Section 216 return after year-end, report gross rent and deductible expenses on a T776, compute tax on the net amount at graduated rates, and CRA refunds the difference between what was withheld and what you actually owe.

The 25% is not a penalty rate — it is a flat, no-questions-asked withholding designed to guarantee CRA gets paid when a non-resident earns Canadian income. Section 216 is the mechanism the Income Tax Act provides to reconcile that flat charge against your real tax bill. The two are not competing rates; they are the rough default and the accurate true-up.

The same Toronto condo, taxed both ways. A US-resident landlord collects $2,500 CAD/month — $30,000 gross rent for the year — with $17,600 in deductible expenses (mortgage interest $9,000, property tax $3,500, insurance $1,200, management fee $2,400, repairs $1,500):

Same property, same rent, same year — a ~$4,800 differencethat comes down entirely to whether you file. Over a 10-year hold, that is roughly $48,000 in recovered tax. The Section 216 return itself typically costs $500–1,500 in CPA fees, so the math is overwhelming for anyone carrying a mortgage.

One nuance for the “~$2,700” figure: a Section 216 return does not use a province's resident brackets. Income reported under Section 216 is treated as income not earned in a province, so the return applies federal tax plus a 48% surtax in lieu of provincial tax. The combined effective rate on net rental income still lands far below 25% of gross in this example — but do not model your refund using ordinary resident provincial brackets.

The honest answer: very few landlords, but not zero. Accepting the default can be reasonable when your net rental income is close to your gross rent — because then 25% of gross is close to your actual tax anyway, and the filing cost may not be worth it. That happens when:

• The property is owned outright — no mortgage, so no mortgage-interest deduction (usually the single largest expense).
• You self-manage from within Canada-adjacent reach — no management fee, and minimal repairs in the year.
• Expenses are genuinely small relative to rent — a newer unit with low maintenance, modest property tax, and few deductible costs.

Even then, run the numbers before assuming. The moment there is a mortgage, the interest deduction alone usually swings the decision decisively toward Section 216. Use the Section 216 calculator to compare your actual 25%-on-gross figure against your estimated Section 216 tax on net — if the gap is more than the cost of the filing, you file.

This is the second decision, and it is about cash flow, not about how much tax you ultimately pay. Both paths get you to the same net tax; they differ in when you have the money.

• Section 216 alone (no NR6).The full 25% of gross is withheld all year. You file Section 216 after year-end and CRA refunds the over-withheld amount. You are effectively lending CRA the excess interest-free for 12–18 months until the refund arrives.
• NR6 first, then Section 216. Filed before January 1, an NR6 authorizes your withholding agent to withhold 25% of net rent (rent minus projected expenses) during the year. Far less is withheld monthly, so you keep the cash as you go. The Section 216 return still gets filed at year-end to true up — but the gap between withholding and actual tax is small.

Using the worked example: without NR6, $625/month is withheld ($7,500/yr). With NR6, the monthly withholding drops to roughly a quarter of the net rent, leaving the bulk of that $7,500 in your pocket through the year instead of waiting on a refund.

The catch: NR6 must reach CRA before January 1 of the year it applies (or before the first rent payment for a new property mid-year), and it commits you to filing Section 216. If you have an NR6 in place and then skip the Section 216 filing, CRA can reassess the full 25% on gross as if the NR6 never existed. The deep mechanics are in our NR6 Application Guide and the Section 216 Complete Guide.

The deadlines differ depending on whether an NR6 was in place — and getting this wrong is the most expensive mistake on the page:

• NR6 deadline: before January 1 of the year it applies (or before the first rent payment for a new mid-year property). It is not accepted retroactively.
• NR4 slip: your withholding agent must issue it by March 31 following the tax year. Box 16 shows gross rent; box 17 shows total Part XIII tax withheld — the numbers your Section 216 return reconciles against.
• Section 216 return, with an NR6 in place: due by June 30 of the following year. Miss it and CRA reassesses the full 25% on gross.
• Section 216 return, no NR6 (refund claim): you have two years from the end of the tax year to file and recover the over-withholding. After that, the withholding becomes the final tax — non-recoverable.

The rhythm to internalize: NR6 in November–December, NR4 by March 31, Section 216 by June 30 (if you had an NR6) or within two years (if you did not).

If you are a US person (citizen, green card holder, or US tax resident), the choice between the two paths changes the number that flows to your US foreign tax credit.

• You report the Canadian rental income on US Schedule E (converted to USD) regardless of which path you take.
• The foreign tax credit on Form 1116 is based on actual Canadian tax paid — not the gross withholding. If you accept the 25% and never file Section 216, you generally credit the 25%. If you file Section 216 and recover part of it, only the smaller, reconciled Canadian tax counts. The IRS will not let you credit tax you got refunded back.

There is an ordering consequence: you cannot finalize Form 1116 until Section 216 produces the actual Canadian tax paid, which is why cross-border CPAs file Section 216 in early spring so the settled Canadian number is ready before the US return is filed. More on the US side in our NR4 Complete Guide.

Three questions resolve it:

1. Do you have a mortgage or meaningful expenses? If yes, file Section 216 — the deduction almost always makes the net tax far smaller than 25% of gross. This is the typical case.
2. Do you want the cash during the year, not as a refund? If yes, file NR6 before January 1 as well, then Section 216 to true up. If you do not mind waiting for the refund, Section 216 alone is fine.
3. Are you mortgage-free with genuinely minimal expenses? Only then is accepting the 25% on gross potentially rational — and even then, run the numbers first.

Put your real figures into the Section 216 calculator to see the 25%-on-gross charge against your estimated Section 216 tax on net, and the CRA Part XIII Remittance Calculator to see your monthly withholding with and without NR6. If the gap between the two paths is larger than the cost of filing, the decision is made.

BorderBirdkeeps the year-round books that make either path painless: it tracks every rent payment and expense per the CRA 15th-of-month rule, supports NR6 net-rent calculations, and produces the T776-ready category data your CPA needs to file Section 216 efficiently — so the year-end filing is a review, not an archaeology project. Try BorderBird free— one property, no time limit, no credit card.

Related reading:

• Section 216 Election: Complete Guide
• NR4 Form: Complete Guide for Non-Resident Landlords
• NR6 Application: How to Reduce 25% Withholding
• T776 Rental Income Form: Complete Guide