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Canada Non-Resident Taxation Guide

the taxation of the non-residents in Canada. The non-residents are subject to the Canadian tax on the Canadian-source income. The Part XIII withholding tax (the "non-resident withholding tax") is a flat 25% on the passive income paid to the non-residents — the dividends, the interest, the rent, the royalties, the pensions, the annuity payments, the RRSP/RRIF withdrawals, and the certain other income. The tax treaty rates reduce the withholding tax (the Canada-US Treaty: 15% on the dividends, 0% on the interest, 0% on the royalties). The Section 216 return allows the non-resident with the rental income to file the special return (the "elective return") and pay the tax at the progressive rates on the NET rental income (instead of the 25% withholding on the GROSS rental income). The Section 115 return is the special tax return for the non-residents with the Canadian business income or the Canadian capital gains (the "non-resident income tax return"). The Section 116 clearance certificate is required for the sale of the "taxable Canadian property" (the Canadian real estate, the Canadian private corporation shares, the Canadian resource property) by the non-resident — the purchaser must withhold 25% (or 50% for the certain property) of the gross sale price if the clearance certificate is not obtained. The NR4 (the "Statement of Amounts Paid to the Non-Residents") is the reporting slip issued by the Canadian payers. The non-resident GST/HST obligations — the non-resident who provides the taxable supplies in Canada must register for the GST/HST (the "non-resident GST/HST registration").

Part XIII Withholding Tax

• 25% flat rate: The standard withholding tax on the passive income paid to the non-residents. The rate applies to the GROSS amount (no deductions). The payers (the Canadian corporations, the trust companies, the banks) must withhold the tax and remit it to the CRA.
• Dividends: 25% on the dividends paid by the Canadian corporations to the non-resident shareholders. The US treaty reduces to 15% (or 5% for the US corporate shareholders with 10%+ ownership). The UK treaty reduces to 15% (or 5% for the UK corporate shareholders). The Australia treaty reduces to 15%.
• Interest: 25% on the "participating debt interest" (the interest that is based on the profits) and the "contingent interest." The "arm's length interest" (the interest on the standard commercial debt) is generally exempt from the Part XIII withholding tax (the "exempt interest" rule). The US treaty reduces the interest withholding to 0%.
• Rent: 25% on the GROSS rental income. The non-resident can elect the Section 216 return to pay the tax on the NET rental income at the progressive rates (the "elective return" — the Form T1159).
• Royalties: 25% on the "copyright royalties" and the "industrial royalties" (the patents, the trademarks, the know-how). The US treaty reduces to 0% on the copyright royalties and 10% on the industrial royalties.
• Pensions and RRSP/RRIF: 25% on the Canadian-source pension income (the OAS, the CPP, the employer pensions, the RRSP/RRIF withdrawals). The US treaty reduces to 15% on the OAS and the CPP, and 0% on the RRSP/RRIF for the US residents.

Section 216 Return (Rental Income)

• Election: The non-resident can elect under s. 216 of the ITA to file the special return (the Form T1159) and pay the tax on the NET rental income at the progressive rates. The election must be filed within 2 years of the end of the tax year (the "s. 216 election deadline").
• Net rental income: The rental income minus the eligible expenses (the mortgage interest, the property taxes, the insurance, the repairs, the management fees, the depreciation). The net income is taxed at the graduated rates (the same rates as the Canadian residents).
• Withholding tax treatment: The non-resident who makes the s. 216 election can claim the refund of the excess Part XIII tax withheld (the 25% withholding on the gross rent vs the tax on the net rent). The tax return must be filed to claim the refund.
• Agent requirement: The non-resident must appoint the "Canadian agent" (the property manager, the accountant, or the lawyer) to file the s. 216 return and to remit the withholding tax on the rental income. The agent must also file the NR4 slip.

Section 115 Return (Business Income & Capital Gains)

• Business income: The non-resident with the Canadian business income (the "business carried on in Canada") must file the s. 115 return (the "non-resident income tax return"). The business income is taxed at the progressive rates (the same as the residents).
• Taxable Canadian property: The non-resident who sells the "taxable Canadian property" (the Canadian real estate, the Canadian private corporation shares, the Canadian resource property, the Canadian timber resource property) must report the capital gain on the s. 115 return. The gain is taxed at the 50% or 66.67% inclusion rate (depending on the total gains for the year).
• Section 116 clearance certificate: The non-resident vendor must obtain the clearance certificate from the CRA to avoid the purchaser's withholding. The purchaser must withhold 25% (or 50% for the certain property) of the gross sale price if the clearance certificate is not provided. The clearance certificate is issued by the CRA within 120 days of the application.

For the departure tax and the deemed disposition rules, see our Leaving Canada Guide →. For the US citizens living in Canada and the cross-border tax rules, see our US Citizens Tax Guide →.