In order to prevent overseas buyers from not paying taxes on time after collecting rent, the Canadian tax agency requires all overseas buyers to pay taxes in advance at 25% of the rental income.
While there is rental income, the property will also generate corresponding expenses such as maintenance, property taxes, etc. In order to be more fair and just, the tax bureau allows non-tax residents to submit NR6 forms on or before January 1 each year. Once approved, they only need to pay rental mortgage tax based on the net income generated by the rental, rather than 25% of the total income.
Assuming the monthly rent is $1,000 and the total annual income is $12,000, without NR6, non-tax residents need to mortgage 25%, or $3,000, of the rent tax to the tax bureau in advance. However, if NR6 is approved, the buyer can estimate the net income after deducting expenses from the total income, and mortgage the rent tax based on the net income. For example, after calculation, the net income is $8,000, and you only need to mortgage 25% of $8,000, or $2,000.
However, in order to facilitate accountability, the tax bureau also stipulates that non-tax residents must entrust a citizen or PR living in Canada to act as their agent when applying for NR6. The responsibilities of the entruster include:
- Submit NR6 instead
- Instead of calculating and paying the corresponding mortgage tax
- Before March 31 of the second year, submit NR4 slip tax returns to the real estate owner and the tax bureau respectively, indicating the total income, expenses and total amount of rental mortgage tax generated in the previous year.
- Before June 30 of the same year, file Form T1159 according to Section 216 of the Personal Tax Code
Different from all other tax refunds, Section 216 T1159 is specifically used to refund or add the rent tax of non-tax residents. For example, we estimate the net income of one year to be 8,000, and pay 2,000 to the tax bureau in advance based on 25% of the budget. But in one year, the water pipe burst and the repair cost another 1,000, and the actual net income was only 7,000. The NR4 slip records all the expenses in one year, the actual net income of 7,000, and the 2,000 that has been mortgaged to the tax bureau, while the T1159 specifically calculates the amount that the tax bureau should refund.
Due to the heavy responsibility and complicated tasks, a reliable trustee is priceless. In addition, the tax bureau's ruling will vary from person to person based on personal circumstances. If you want to use a trustee to handle your Canadian real estate income, we still recommend that you find a professional you can trust.
However, although non-tax residents must have a qualified agent to act as their agent if they are approved for NR6, approval of NR6 is not a prerequisite for applying for a mortgage tax refund. If you cannot find a suitable person for the time being, you can also pay the mortgage tax to your personal account under the CRA according to Section 216 at 25% of the total rent, and calculate the fees within two years of receiving the rent, fill out and submit T1159 to apply for a tax refund. However, the content in T1159 is complicated and requires calculation, so we still recommend that he find a reliable accountant to avoid unnecessary losses.
