June 30 Tax Deadline is Looming for Non-Residents

An important deadline is approaching for non-residents with certain Canadian-source income. June 30 is the deadline to file elected returns under Section 216 (pertaining to rental income) and Section 217 (pertaining to Canadian source pension income). There may be significant consequences for missing this deadline as returns received after this date, generally aren’t accepted. Here’s what you need to know:

The Background. Canadian income tax filing obligations are based on residency, not citizenship, unlike the United States tax system. Canadian tax residency is determined by a variety of factors, including the amount of time spent in Canada, the application of tax treaties, and an individual's residential ties to Canada. Individuals who are uncertain about their residency status may submit Form NR73, Determination of Residency Status (Leaving Canada), to the Canada Revenue Agency (CRA) to request an official determination of their residency status.

Once an individual has been determined to be a non-resident of Canada, there may still be circumstances in which a T1 Income Tax and Benefit Return must be filed or where filing is beneficial.

When Must a Non-Resident Tax Return Be Filed?

A Non-Resident (NR) Tax returns must be filed if the individual has:

• Employment or business income earned in Canada
• Rental or Royalty income in Canada
• Disposition of taxable Canadian property
• Received a request from the Canada Revenue Agency (CRA) to file a return

A Non-Resident (NR) tax return should be filed if the individual wishes to:

• Claim a refund of Part I or Part XIII tax that was withheld at source

Part I Tax vs. Part XIII Tax

Part I tax generally applies to employment and business income earned in Canada.

Part XIII tax generally applies to certain types of Canadian-source passive income paid to non-residents, including:

• dividends
• pension payments (including OAS and CPP benefits) and annuities
• RRSP and RRIF withdrawals
• retirement allowances
• management fees
• rental income
• royalty payments.

Unless reduced by an applicable tax treaty, Part XIII tax is generally withheld at a rate of 25%.

Special Elections Available to Non-Residents

In certain circumstances, non-residents may be able to recover some or all of the tax withheld by filing special elective non-resident tax returns.

Section 216 Election applies to:

• Net rental income from real or immovable property situated in Canada
• Timber royalty income from Canadian sources

If Form NR6 is filed and approved by the CRA, the non-resident agrees to file a tax return annually, even if no tax is owing. Approval allows tax to be withheld on net rental income rather than gross rental income. Form NR6 must be submitted each year before the first rental payment is received (generally before January 1).

Section 216.1 Election applies to:

• Non-resident actors earning income subject to the 23% withholding tax on acting services performed in Canada

Section 217 Election applies to:

• Certain Canadian-source income that is otherwise subject to Part XIII withholding tax, including eligible pension and benefit income (generally subject to 25% withholding, unless reduced by treaty)

Section 218 Election

• Non-resident investors with Canadian mutual fund investments who are subject to tax on capital gains distributions (generally withheld at 15%)

Reducing Tax Withholding on OAS and CPP Benefits

Part XIII tax is generally withheld from Old Age Security (OAS) and Canada Pension Plan (CPP) payments made to eligible individuals who are no longer residents of Canada.

In certain circumstances, a non-resident may submit Form NR5 to request a reduction in the amount of non-resident tax withheld for a period of up to five years.

If the NR5 application is approved, the recipient must file a Section 217 return for each year covered by the approval. The Section 217 return must be filed within six months after the end of the tax year to maintain the reduced withholding arrangement.

Important: Filing Deadlines

A Non-Resident tax return filed under a Section 216.1 election must be received by the Canada Revenue Agency (CRA) no later than April 30 following the end of the tax year. Returns received after this date will generally not be accepted.

A Non-Resident tax return filed under a Section 216 or Section 217 election must be received by the Canada Revenue Agency (CRA) no later than June 30 following the end of the tax year. Returns received after this date will generally not be accepted.

If a Section 216.1 or Section 217 return is filed after the applicable filing deadline, the CRA will generally not accept the election. As a result, the non-resident tax withheld at source will be considered the individual's final tax liability for that income, and any potential refund that may have been available through the election will be forfeited.

However, CRA does have an administrative policy that allows for late filing of non-resident rental income or timber royalties under Section 216, to allow taxation on net instead of gross income.  Filed voluntarily the returns are then treated as if filed on time, waiving penalties, but not interest.  

Due Dates for Non-Resident (NR) Tax Returns

April 30 – Most non-resident tax returns, including returns with a balance owing

June 15 – Non-resident tax returns for self-employed individuals

June 30 – Section 216 election (with an approved NR6) and Section 217 election

Bottom Line: If you are filing a Non-Resident tax return under Section 216, 216.1  or Section 217, the filing deadline is approaching quickly. Missing the deadline can result in the loss of the election and any refund that may otherwise have been available,

Non-resident taxation is a specialized area of Canadian tax law. Understanding the applicable filing requirements, elections, withholding rules, and deadlines can help ensure compliance and prevent costly mistakes.

Link for: NR73 – Determination of Residency Status (leaving Canada) - https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/nr73.html

Link for T4058 – Non-Residents and Income Tax - https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4058/t4058-25e.pdf

Link for T4145 – Electing Under Section 217 of the Income Tax Act - https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4145/t4145-electing-under-section-217-income-tax-act.html