Ontario Landlord with Florida Rental Property

Ontario residents are the single largest source of Canadian capital flowing into Florida residential real estate. The reasons are structural: GTA pricing has decoupled from rental yields, Florida caps at 6-8% gross routinely, and three major airports (Toronto Pearson, Hamilton, Ottawa Macdonald-Cartier) put every part of Florida within a 3-hour direct flight.

This guide covers the CRA + IRS tax workflow specifically for the Ontario → Florida case. Two principles framed up front: Florida has zero state income tax, so your US side is federal-only, and Section 871(d) election is what prevents the 30% gross-rent withholding trap — getting this right is the single most consequential tax setup decision you'll make.

Why Ontario → Florida specifically

Before the tax detail, the demand pattern matters because it shapes which Florida markets you're likely operating in:

• Toronto SFH at $1.3M renting for $4,000/month = 3.7% gross yield, before 1.1% Toronto property tax, insurance, and Ontario's rent control cap (2.5% in 2026). After expenses, real cap rates often dip below 2%.
• Florida SFH at $400,000 renting for $3,000/month = 9.0% gross yield with property tax around 1.0-1.5%, capping 5-6% after expenses.

The Ontario-Florida buyer markets cluster by GTA airport access:

• Tampa Bay (Tampa, St. Pete, Clearwater) — direct WestJet/Air Canada from Pearson; popular with Mississauga / Oakville / Burlington buyers
• Sarasota / Naples / Fort Myers — second-largest Ontario buyer cluster, attracting the Markham / Richmond Hill / GTA-north demographic
• Orlando — investor-heavy due to short-term-rental zoning; smaller snowbird share
• Miami / Boca Raton / Palm Beach — higher entry price, ultra-high-net-worth Ontario buyers

Knowing your market shapes deduction profile (Tampa Bay hurricane insurance vs Orlando theme-park-driven STR economics vs Miami HOA-heavy condos).

CRA Side: Reporting Your Florida Rental Income

T776 Statement of Real Estate Rentals

You file Form T776 as part of your T1 personal return — one T776 per Florida property. Report:

• Gross rental income in CAD, converted at the Bank of Canada annual average rate for the tax year (2025 = 1.3978 CAD per USD)
• Deductible expenses in CAD using the same rate: mortgage interest (not principal), property tax, insurance, repairs, condo HOA, property management fees, utilities you pay, accounting fees, advertising

The net figure flows to T1 line 12600. Ontario's combined top marginal rate is 53.53% on income over $246,752 (2025) — high enough that the foreign tax credit on US tax paid almost always absorbs your US liability, with Ontario topping up the residual.

Common mistake: using daily exchange rates inconsistently. CRA accepts both the Bank of Canada annual average (the standard for rental income) and transaction-date rates, but you must use one method consistently across the entire year and across the property's lifetime. Most cross-border CPAs use the annual average — simpler to defend on review.

T1135 Foreign Income Verification Statement

If your total cost base of specified foreign property exceeds CAD $100,000 at any point in the year, you file T1135. A Florida condo at $300,000 USD (CAD $419,340 at 1.3978) clears the threshold easily — and the $250,000 Detailed Reporting threshold often follows on a single property.

T1135 penalties are genuinely punitive — the casual "small filing" framing in older guides is misleading:

• Late filing: $25/day, max $2,500
• Failure to file: up to $24,000 per year
• False statement or omission: 5% of unreported property cost, with a $24,000 minimum
• Failing to file T1135 extends CRA's reassessment window from 3 to 6 years for related tax years

For a property with $400,000 CAD cost base, the 5% penalty on omission is $20,000 — but the $24,000 minimum applies. The Voluntary Disclosures Program typically waives penalties if you come forward before CRA contacts you.

Foreign Tax Credit on T1

The Canada-US Tax Treaty prevents double taxation. After paying US tax via 1040-NR, you claim a Foreign Tax Credit on T1 line 40500 (federal) — supported by Form T2209. For Ontario residents specifically, the federal FTC is what mainly matters; Ontario provincial FTC follows similar mechanics.

Ontario's top combined rate (53.53%) exceeds typical US non-resident effective rates on rental income (24-30% on net). Net effect: the FTC absorbs your US tax fully and Ontario tops up the residual. You pay the higher of the two rates, not both.

IRS Side: US Federal Tax Filing

ITIN Application — Form W-7

Before filing 1040-NR, you need an Individual Taxpayer Identification Number. File Form W-7 with your first 1040-NR. Strongly recommended: use a Certifying Acceptance Agent (CAA) rather than mailing your physical Canadian passport to the IRS. CAAs verify your passport in person and forward certified copies. Cost: $100-300 typical CAA fee. Processing: 7-11 weeks for the ITIN.

Section 871(d) Election — the Withholding Trap Avoidance

This is the single most consequential setup decision and the place older online guides routinely get wrong.

Default treatment: US rental income paid to non-resident aliens is FDAP (Fixed, Determinable, Annual, Periodical) — your property manager must withhold 30% of gross rent and remit it to IRS. No expense deductions. On $24,000 annual rent, $7,200 is withheld annually.

Section 871(d) election treats the rental income as Effectively Connected Income (ECI) under a US trade or business. Once elected, you deduct expenses on Schedule E and pay tax on net rental income at graduated rates (typically 10-24%).

How the election is actually made (this is where the misinformation cluster lives):

1. First-year filing: attach a written statement to your first 1040-NR stating "Taxpayer elects to treat rental income from US real property as effectively connected with a US trade or business under IRC §871(d)." Include property addresses and the election year.
2. To stop the 30% withholding at source: provide your property manager with Form W-8ECI (Certificate of Foreign Person's Claim That Income Is Effectively Connected). This is the form that goes to the manager — not 8288-B.
3. Form 8288-B is for FIRPTA at sale, not rental withholding. Anyone who tells you to use 8288-B for §871(d) election is confusing two entirely different rules.

The election applies to all your US rental income going forward (not per-property). Revoking it requires IRS consent and is rare.

Form 1040-NR + Schedule E + Form 4562

Filing your annual US return:

• Form 1040-NR: main non-resident return; deadline June 15 for Canadians with no US wage withholding (automatic 2-month extension)
• Schedule E: rental income and itemized expenses per property
• Form 4562: depreciation. Residential rental property depreciates over 27.5 years straight-line on the building portion (not land)

Florida-specific Schedule E deductions:

• Property tax (effective rate ~1.0-1.5%, county-dependent — Pinellas, Hillsborough, Sarasota counties vary)
• Hurricane insurance (Florida insurance rates are 2-4x Ontario rates — fully deductible)
• Condo HOA fees (typical $400-800/month on coastal condos)
• Pool service / landscaping (year-round Florida climate)
• Property management (10-12% of monthly rent typical)

Florida's Zero State Income Tax Advantage

Florida is one of nine US states with no personal income tax. Your only US filing is federal 1040-NR. Compared to Ontario landlords with property in:

• California: would file Form 540NR (state tax 1-13.3%)
• New York: would file IT-203 (state tax 4-10.9%)
• Arizona: would file 140NR (flat 2.5%)

Florida's zero-state-tax simplification saves you a state return every year and reduces total US tax materially. This is a substantial reason Florida dominates Canadian-buyer share vs other warm states.

Property tax is still owed — Florida property tax (1.0-1.5% effective, county-dependent) is paid annually to the county tax collector. Deductible on both Schedule E and T776.

Selling Your Florida Property — FIRPTA

When you sell, the buyer's closing agent must withhold under the Foreign Investment in Real Property Tax Act:

• 15% of gross sale price default
• 10% if sale is $300,001-$1,000,000 AND buyer-occupant certification
• 0% if sale is $300,000 or less AND buyer-occupant certification

On a $500,000 sale, $75,000 is held by IRS for 12-18 months until your 1040-NR for year of sale processes the refund of any excess.

To reduce withholding before closing: file Form 8288-B Withholding Certificate at least 90 days before closing. The IRS reviews your projected capital gains tax and issues a certificate authorizing reduced withholding — typically matching your actual tax rather than 15% of gross. Standard CPA fee: $500-1,500. On a typical sale, cash-flow benefit vastly exceeds the prep cost.

(Note: this is the actual purpose of Form 8288-B — FIRPTA withholding reduction, not Section 871(d) election.)

Common Ontario → Florida Mistakes

1. Missing Section 871(d) election in year 1. 30% gross-rent withholding for a full year, recovered through painful 1040-NR refund process.
2. Using a US LLC. CRA-IRS LLC mismatch causes double taxation and lost foreign tax credits. Hold Florida property personally unless you have $5M+ portfolio and specialized cross-border CPA structure.
3. Skipping T1135. Penalty starts at $24,000 minimum. Far larger than any tax savings.
4. Inconsistent FX conversion. Use Bank of Canada annual average rate consistently. Switching methods year-over-year invites CRA review.
5. Not filing in years with rental loss. A net rental loss year still requires both T776 and 1040-NR. Skipping filing forfeits the loss carryforward and exposes you to penalties.

Next Steps for Ontario Landlords

• See our Ontario → Florida audience page for software-specific workflow
• City-specific guides: Tampa, Naples, Sarasota, Cape Coral
• FIRPTA Withholding Calculator — estimate withholding at sale
• USD/CAD Exchange Rate Database — Bank of Canada rates 2010-present
• Engage a cross-border CPA for first-year 1040-NR + Section 871(d) election statement