Part XIII Withholding Tax: What Non-Resident Landlords Must Know

Part XIII Withholding Tax: What Non-Resident Landlords Must Know

When Canadian rental property owners become non-residents of Canada, their tax obligations change dramatically. Part XIII of the Income Tax Act imposes a 25% withholding tax on gross rental income—not net income after expenses. Understanding this withholding regime is essential for non-resident landlords and the property managers and other Canadian agents who pay them rent. Since ITA 215(1.2)–(1.3), retroactive to August 12, 2024, an individual tenant paying directly for the home they live in does not withhold — the landlord remits instead. The section below sets out exactly who is caught and who is not.

This guide explains who must withhold, how to remit to the CRA, and the strategies available to reduce your effective tax rate on Canadian rental income.

Understanding Part XIII Withholding Tax

Part XIII of the Income Tax Act governs the taxation of certain types of Canadian-source income paid to non-residents. Rental income from Canadian real property falls squarely within this regime under paragraph 212(1)(d).

The Default 25% Rate

The standard Part XIII withholding rate is 25% of gross rental payments. This means:

• Withholding applies to the full rent amount before any deductions
• Mortgage interest, property taxes, insurance, repairs, and management fees are not considered
• The tax is withheld at source and remitted directly to the CRA

For example, on $2,000 per month in rent, $500 must be withheld and remitted to the CRA, leaving you with $1,500—regardless of your actual expenses. (Where the exception in ITA 215(1.2) applies, nothing is withheld from the payment and the same $500 is remitted by you instead. The 25% is owed either way; only who sends it changes.)

Who Qualifies as a Non-Resident?

You are considered a non-resident of Canada for tax purposes if you:

• Have severed your residential ties with Canada (no home, spouse, or dependants remaining)
• Ordinarily live in another country
• Are considered a resident of another country under a tax treaty

The CRA examines factors including where you maintain a home, where your family lives, your social and economic ties, and your intentions. Form NR73, Determination of Residency Status, can be filed to obtain a CRA ruling, though this is optional.

Who Must Withhold and Remit

The obligation to withhold Part XIII tax falls on the payer—but since ITA 215(1.2)–(1.3) an individual tenant renting the home they live in is carved out of it.

Payer Responsibilities

The payer required to withhold is typically:

• A property management company collecting rent on behalf of a non-resident
• Any Canadian agent acting for the non-resident (ITA 215(3))
• A tenant that is not an individual — a corporate tenant, or a trust other than a graduated rate estate — paying rent directly
• Any tenant, including an individual, in respect of rent paid or credited before August 12, 2024

The Individual-Tenant Exception (ITA 215(1.2)–(1.3))

Under ITA 215(1.2), the withholding rule in 215(1) "does not apply in respect of an amount paid or credited by an individual (other than a trust that is not a graduated rate estate) to a non-resident person as rent for the use of a residential property (as defined in subsection 67.7(1)) in which an individual resides." A residential property under 67.7(1) is a house, apartment, condominium unit, cottage, mobile home, trailer, houseboat, or other property in Canada whose use is permitted for residential purposes under applicable law.

In plain terms: if an individual tenant pays a non-resident landlord directly for the home they live in, no withholding is required. Under ITA 215(1.3), the non-resident landlord must instead remit the tax to the Receiver General — the Act says "immediately", and CRA has published no guidance on what that means in practice, so there is no monthly deadline to point to here. The 15th-of-the-month rule applies to withholding agents, not to this self-remittance.

These provisions were enacted by S.C. 2026, c. 3, s. 90 and are deemed to have come into force on August 12, 2024.

The exception does not reach an arrangement with an agent. Where rent is paid to an agent or other person, ITA 215(3) still requires that agent to withhold 25% of gross rent and remit it.

CRA's guide T4061 has not yet been updated for this change, so a reader checking it will still see the tenant described as the withholder. The Act governs.

Where Withholding Does Apply

The payer must:

1. Withhold 25% from each rental payment
2. Remit the withheld amount to the CRA by the 15th day of the month following payment
3. File an NR4 information return by March 31 of the following year
4. Provide NR4 slips to both the non-resident and the CRA

Consequences of Failing to Withhold

Payers who are required to withhold and fail to do so face serious consequences under section 227 of the Income Tax Act:

• Liability for the tax that should have been withheld
• Interest charges from the due date
• Penalties of 10% for first failures, 20% for repeated failures if made knowingly or through gross negligence

Property managers and other Canadian agents must understand that this liability is real and enforceable, even if they were unaware of the landlord's non-resident status. An individual tenant paying directly for their own residence is outside this regime as of August 2024 — but the landlord's own remittance obligation under 215(1.3) is not.

Reducing the Withholding Rate with Form NR6

The 25% withholding on gross rent often results in over-taxation because it ignores expenses. Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real or Immovable Property or Receiving a Timber Royalty, allows non-residents to elect for reduced withholding.

How the NR6 Election Works

When you file an approved NR6:

• Withholding drops from 25% of gross rent to 25% of estimated net rent
• Net rent equals gross rent minus eligible expenses (mortgage interest, property taxes, insurance, maintenance, management fees, utilities paid by landlord)
• Your Canadian agent remits tax only on the net amount

Filing Requirements for NR6

To use the NR6 election:

1. Submit Form NR6 to the CRA before the first rental payment of the year, or within the first rental payment period for new arrangements
2. Include a reasonable estimate of rental income and expenses for the year
3. Ensure both the non-resident and their Canadian agent sign the form
4. Wait for CRA approval before applying the reduced withholding rate
5. File a Section 216 return (T1159, Income Tax Return for Electing Under Section 216) by June 30 of the following year

The CRA provides guidance on NR6 elections in Income Tax Folio S5-F2-C1, Foreign Tax Credit.

Canadian Agent Requirement

You must appoint a Canadian agent to file an NR6. This agent:

• Can be an individual resident in Canada or a Canadian corporation
• Takes on the responsibility to withhold and remit on net rental income
• Must sign the NR6 undertaking

Property management companies commonly serve as agents, but any trustworthy Canadian resident can fulfill this role.

Section 216 Election: Filing a Canadian Return

Whether or not you file an NR6, you may elect under section 216 to file a Canadian income tax return reporting your rental income on a net basis.

Benefits of Filing Under Section 216

Filing a Section 216 return allows you to:

• Calculate tax on net rental income using graduated Canadian tax rates
• Claim all eligible rental expenses
• Potentially receive a refund if withholding exceeded your actual tax liability
• Access provincial tax credits (though non-residents pay federal tax plus surtax in lieu of provincial tax)

Section 216 Filing Deadlines

The deadline depends on whether you filed an NR6:

| Situation | Filing Deadline | |-----------|-----------------| | NR6 approved | June 30 following the tax year | | No NR6 filed | Within 2 years from the end of the tax year |

Missing the deadline when an NR6 was approved means losing the ability to file under section 216, leaving you taxed at 25% on gross rent with no recourse.

Form T1159

Use Form T1159, Income Tax Return for Electing Under Section 216, to report your rental income. You'll calculate:

• Gross rental income received during the year
• Allowable expenses (same categories as for residents)
• Net rental income subject to federal tax
• Tax credits (basic personal amount, if applicable)

Federal tax for non-residents under section 216 uses the standard federal rates plus an additional tax in lieu of provincial tax, calculated on Schedule A of the T1159.

Tax Treaty Considerations

Canada's tax treaties with other countries can reduce or modify Part XIII withholding obligations. However, most treaties do not reduce the withholding rate on rental income from real property.

Common Treaty Provisions

Under Article VI of most Canadian tax treaties (following the OECD Model Convention), income from real property may be taxed in the country where the property is located. This means:

• The 25% withholding rate generally remains intact
• Treaty countries do not typically negotiate lower rates for rental income
• Your country of residence may provide a foreign tax credit for Canadian taxes paid

For example, the Canada-U.S. Tax Treaty does not reduce Part XIII withholding on Canadian rental income paid to U.S. residents. However, U.S. residents can claim foreign tax credits on their U.S. return.

NR4 Reporting Requirements

Form NR4 serves as the information return for Part XIII withholding, similar to how T4 slips report employment income.

Annual Filing Obligations

The Canadian agent or payer must:

• Complete NR4 slips for each non-resident recipient
• File the NR4 Summary with the CRA by March 31 following the calendar year
• Provide NR4 slips to the non-resident by the same deadline

The NR4 slip shows gross income paid and tax withheld, which the non-resident needs for their section 216 return and for claiming foreign tax credits in their country of residence.

Practical Compliance Steps for Non-Resident Landlords

To manage Part XIII obligations efficiently:

1. Notify your tenant or property manager of your non-resident status before or immediately upon becoming a non-resident
2. Appoint a Canadian agent and file Form NR6 before the first rental payment of each year
3. Maintain detailed records of rental income and expenses
4. File your Section 216 return by June 30 to claim refunds and maintain compliance
5. Coordinate with your accountant in both Canada and your country of residence to optimize foreign tax credits

Frequently Asked Questions

What happens if my tenant doesn't withhold Part XIII tax?

If the tenant is an individual paying you directly for the home they live in, nothing — since ITA 215(1.2), that tenant has no withholding obligation at all, and the duty to remit the tax to CRA is yours under ITA 215(1.3). This applies to rent paid or credited on or after August 12, 2024.

Where withholding is required — a corporate tenant, a tenant that is a trust other than a graduated rate estate, rent paid before August 12, 2024, or any arrangement where a property manager or other Canadian agent collects the rent (ITA 215(3)) — the payer who failed to withhold becomes liable for the tax under section 227, plus interest and penalties. CRA can also look to you, the non-resident, for the underlying tax.