Non-Resident Status Under Canada’s Income Tax Act: Withholding and Rentals

Non-resident status under Canada’s Income Tax Act means Canada can tax you only on income with a Canadian source: employment or business income earned in Canada, gains on the sale of taxable Canadian property, and passive income like rent, dividends, interest, royalties, and pension payments that a Canadian payer sends you. Your foreign salary, foreign investments, and foreign business profits sit outside the CRA’s reach. What you owe, and whether you have to file a return at all, depends on which of those Canadian-source streams you have.

Who Counts as a Non-Resident

Residency has nothing to do with citizenship or where your passport was issued. The CRA looks at your ties to Canada. You are a non-resident when you live outside Canada throughout the tax year and you have severed your significant residential ties.¹

Three ties do most of the work in that analysis:

A home in Canada available for your use.
A spouse or common-law partner living in Canada.
Dependants living in Canada.

Any one of those, on its own, will usually keep you a resident. Secondary ties — a Canadian bank account, a driver’s licence, provincial health coverage, a car, club memberships — don’t decide the question individually, but the CRA weighs them together.¹ Courts have framed residency as the degree to which you have settled into your ordinary way of living in a place.² If you moved abroad but left the house available for your return and your family in it, expect the CRA to treat you as a resident.

The 183-Day Sojourner Rule

You can also become a deemed resident with no ties at all, simply by being physically present in Canada for 183 days or more in a calendar year.³ Partial days count, and scattered visits add up.⁴

The rule bends where a tax treaty applies. If a treaty tie-breaker allocates your residency to the other country, based on where your permanent home, personal and economic centre, or habitual abode sits, the 183-day rule doesn’t override that result.⁴

What Canada Can Tax You On

Section 2(3) of the Income Tax Act is the boundary. As a non-resident, you owe Canadian tax only if, during the year, you were employed in Canada, carried on business in Canada, or disposed of taxable Canadian property.⁵ Everything outside that list is beyond the CRA’s reach.

Canadian tax on non-residents runs on two tracks:

Part I tax covers active income and property gains — Canadian employment income, business profits from a Canadian operation, and gains on taxable Canadian property. These are taxed at graduated rates, and you can deduct related expenses. Part I always requires a Canadian return.⁶
Part XIII tax covers passive income sent to you from Canada — dividends, certain interest, rent, royalties, pensions, and RRSP or RRIF withdrawals. The Canadian payer withholds a flat percentage at source before the money reaches you.⁷

For many non-residents, Part XIII withholding is the entire relationship with Canadian tax. No return, no calculations. Part I is the more involved side.

Withholding on Passive Canadian Income

Section 212 sets the default Part XIII rate at 25% on amounts a Canadian resident pays or credits to a non-resident. The list of amounts caught by that section is wide: rent, royalties, management fees, pension and retirement payments, RRSP and RRIF withdrawals, estate and trust distributions, and certain interest.⁸ In most cases the 25% withholding is your final Canadian tax on that payment.

Tax treaties often reduce the rate. Canada’s treaties with the United States, the United Kingdom, and most major trading partners bring dividend withholding down to 15%, and reduce interest and royalty rates further. Some treaties eliminate withholding on certain interest entirely. The applicable rate depends on the type of income and the specific treaty, so check the treaty rather than assuming a standard reduction.⁷

Rental Income: NR6 and the Section 216 Return

If you own a Canadian rental property, the default is that your agent or property manager withholds 25% of the gross rent and remits it to the CRA. Nothing is deducted for mortgage interest, property tax, or maintenance.⁹ For a leveraged property, that default can wipe out cash flow.

Form NR6, filed jointly with your Canadian agent, asks the CRA to base withholding on estimated net income instead. Once approved, only your projected profit is taxed at source.⁹

The condition attached to that approval is strict. Once you file an NR6, you must file a Section 216 return (Form T1159) by June 30 of the following year. For 2025 rentals under an approved NR6, the Section 216 return is due June 30, 2026. That deadline holds even if you owe nothing. Miss it and the CRA reassesses tax at 25% of gross rent, less what was already remitted, and adds penalties and interest.¹⁰

If you didn’t file an NR6 and the full 25% came off your gross rent all year, you still have a route back. A Section 216 return filed within two years of the tax year-end lets you recalculate on a net basis and claim a refund of the overpayment.⁹

Pensions and the Section 217 Election

If you receive Canadian pension or benefit income as a non-resident, Section 217 lets you file a Canadian return and be taxed at graduated rates instead of taking the flat 25% Part XIII hit.¹¹ For modest pension income, graduated rates plus the basic personal credit often produce a lower final tax bill.

Eligible income includes Old Age Security, CPP and QPP benefits, most superannuation and pension payments, RRSP and RRIF withdrawals, death benefits, employment insurance, and certain retiring allowances. The election covers only how this income is taxed; it doesn’t change your residency for anything else.

OAS carries a separate wrinkle. Non-residents receiving OAS may also need to file the OAS return of income (Form T1136), independent of any Section 217 election. The OAS clawback applies to non-residents on the basis of worldwide income, and failing to file the return can lead the CRA to withhold the full pension.

Selling Canadian Property

Disposing of taxable Canadian property — real estate, some shares, resource property — triggers Section 116. You must notify the CRA within 10 days of the sale and apply for a clearance certificate.¹²

Until the certificate issues, the buyer (typically through their lawyer) must hold back 25% of the purchase price and send it to the CRA within 30 days of the month-end in which the sale closed.¹³ The holdback rate rises to 50% for certain property types, including Canadian resource properties and depreciable property.¹²

The withholding runs on the gross sale price, not your gain. A condo bought for $400,000 and sold for $600,000 attracts a $150,000 holdback even though the actual gain is $200,000. Getting the excess back requires filing a Canadian return and waiting for the assessment. The clearance certificate is the way around that: apply before or promptly after closing and the CRA limits the holdback to 25% of the estimated gain rather than the full price.

Failing to notify the CRA carries a penalty of $25 per day up to $2,500, on top of interest on unpaid tax.¹³ The practical enforcement is faster: the buyer’s lawyer will not release your proceeds without either the certificate or the required holdback.

The Underused Housing Tax Filing

If you own residential property in Canada on December 31, you generally have a separate filing to consider under the Underused Housing Tax Act, in effect since 2022. The obligation is to file a UHT return (Form UHT-2900) for the property, even where no tax is owed because the property is rented out or qualifies for an exemption.¹⁴

The tax itself is 1% of the property’s assessed value, aimed at vacant or underused housing held by non-resident non-Canadian owners. The trap is the filing penalty. Missing the return costs a minimum of $1,000 for individuals and $2,000 for corporations, even when no UHT is payable.¹⁴ Non-residents who rent out their Canadian property frequently owe zero UHT but still get hit with the penalty for not filing.

Forms, ITN, and Deadlines

A handful of forms cover most non-resident situations:

NR4 is the annual slip a Canadian payer issues showing amounts paid or credited and Part XIII tax withheld — the non-resident equivalent of a T4.¹⁵
NR6 is the joint undertaking with a Canadian agent to withhold on net rather than gross rent.⁹
T1159 is the Section 216 return for Canadian rental income on a net basis.
T4145 is the CRA guide for the Section 217 election on pensions and benefits.

To file anything with the CRA you need either a Social Insurance Number or an Individual Tax Number. Most non-residents who have never worked in Canada aren’t eligible for a SIN, so they apply for an ITN using Form T1261. The ITN is a nine-digit identifier that follows your filings across years. You need it for Section 216 returns, Section 217 elections, dispositions of taxable Canadian property, and any request for reduced withholding.¹⁶

Deadlines track the type of return. A non-resident Part I return is due April 30 of the following year, or June 15 if you or your spouse carried on a business in Canada, with any balance still owing by April 30. Section 216 returns are due June 30 of the following year when an NR6 was in place, or within two years of the year-end if no NR6 was filed.¹⁰

The penalty non-residents should pay closest attention to is the gross negligence provision. A false statement or significant omission on a return, including misstating your residency, can attract a penalty of 50% of the understated tax, with a minimum of $100.¹⁷ Claiming non-residency while keeping a house and family in Canada, or claiming residency to grab credits you aren’t entitled to, both fall inside that provision. Every filing decision described above rests on getting the residency call right first.

1
Canada Revenue Agency. Determining Your Residency Status
2
Canada Revenue Agency. Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status
3
Justice Laws Website. Income Tax Act RSC 1985 c 1 – Section 250
4
Canada Revenue Agency. Deemed Residents of Canada
5
Justice Laws Website. Income Tax Act RSC 1985 c 1 – Section 2
6
Canada Revenue Agency. Non-Residents of Canada
7
Canada Revenue Agency. Applicable Rate of Part XIII Tax on Amounts Paid or Credited to Persons in Countries With Which Canada Has a Tax Convention
8
Justice Laws Website. Income Tax Act RSC 1985 c 1 – Section 212
9
Canada Revenue Agency. Filing and Reporting Requirements
10
Canada Revenue Agency. Important Reminder About Form NR6
11
Canada Revenue Agency. Electing Under Section 217
12
Justice Laws Website. Income Tax Act RSC 1985 c 1 – Section 116
13
Canada Revenue Agency. Procedures Concerning the Disposition of Taxable Canadian Property by Non-Residents of Canada – Section 116
14
Canada Revenue Agency. Introduction to the Underused Housing Tax
15
Canada Revenue Agency. NR4 Statement of Amounts Paid or Credited to Non-Residents of Canada
16
Canada Revenue Agency. Applying for an Individual Tax Number
17
Canada Revenue Agency. False Reporting or Repeated Failure to Report Income