US Citizen with Rental Income from Canada
Moderator: Mark T Serbinski CA CPA
US Citizen with Rental Income from Canada
I am a US citizen considering buying a rental property in Canada. Do I have to declare the rental income on my U.S. 1040 Income Tax return, or can I file a non-resident Canadian Income tax return and declare the income there. The Canadian Income Tax return would be at a much lower rate for me.
you get to file the income in BOTH countries!
For canada, you MUST file a non-resident '216' return reporting only the rental income/expenses, on which you end up paying 25% of the net income. As a non-resident, you must also remit 25% of the rent upfront each month, until you file a form to reduce that.
You also report it on your 1040, as normal, and get to claim the Cdn tax as a credit. This usually means a little more US tax, and state tax too of course.
Not the best investment from a rental tax point of view.
And you MUST depreciate your property on 1040. You don't have to for Cdn tax, but you probably should so that the taxes mesh better.
For canada, you MUST file a non-resident '216' return reporting only the rental income/expenses, on which you end up paying 25% of the net income. As a non-resident, you must also remit 25% of the rent upfront each month, until you file a form to reduce that.
You also report it on your 1040, as normal, and get to claim the Cdn tax as a credit. This usually means a little more US tax, and state tax too of course.
Not the best investment from a rental tax point of view.
And you MUST depreciate your property on 1040. You don't have to for Cdn tax, but you probably should so that the taxes mesh better.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
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zerocc1990
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zerocc1990
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US Citizen with Rental Income from Canada
I understand that (without the NR6) the rental agent withholds 25% and remits it to the CRA, and when I file a file a non-resident 216, the rental income is then taxed on a net basis, and I assume any taxes paid in excess will be refunded to me. Lets say my net income after expenses and depreciation is $4000 (on $24,000 gross).
Would I then essentially be paying 25% on $4000.
Or as the CRA website states: "15% on the first $44,701 of taxable income"
15% on $4000.
Would I then essentially be paying 25% on $4000.
Or as the CRA website states: "15% on the first $44,701 of taxable income"
15% on $4000.
15% on the first $44,701 of taxable income is the tax rate for residents. Rental income for non-residents is taxed at a flat rate, nominally 25% (when the bottom tax bracket was 17%. It works out to a little under that ~22%: 15% plus 48% surtax = 22.2%
Then you report essentially the same incoem in US, and will get some (not all) credit for the Cdn tax, and also pay some more too. Plus state tax.
Then you report essentially the same incoem in US, and will get some (not all) credit for the Cdn tax, and also pay some more too. Plus state tax.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
How would you mark on the Section 216 that you are paying 25%? Federal Tax part1 to guides you to pay 22.2%.
I called CRA they said the rate would be 22.2% going up toward the graduated rates regardless of treaty is this correct?
Like wise when the house is sold the same Federal taxrate + non-resident surtax applies except with the capital gains rate of 1/2.
I called CRA they said the rate would be 22.2% going up toward the graduated rates regardless of treaty is this correct?
Like wise when the house is sold the same Federal taxrate + non-resident surtax applies except with the capital gains rate of 1/2.
You pay 22.2% on the S.216 as long as your NET rental income is less than $44,701 (first tax bracket). This is 15% federal plus 48% surtax, which works out to 22.2%. This will almost always be the case. It would be very rare to have net rental income above this amount at a higher graduated rate.
Nelsona, already mentioned this above. I think you are getting confused with the 25% withholding rate. The 25% is just a flat withholding tax. You do not have to file a S.216 return, it's an elective return that is completely optional. The 25% withholding is your final tax obligation to Canada if you want it to be. However, you would be crazy not to file the S.216, because you can use your expenses and pay slightly less tax at 22.2% instead of 25%.
When you sell as a non-resident, you will pay the exact same 22.2% provided that the TAXABLE gain (50% of total gain) is less than $44,701. The only difference is the gain will be reported on a T1 General Non-Resident return instead of a S.216 return.
If you depreciate the property, the recapture will go on a S.216 return with your rental income and expenses for the year. This is NOT included on the T1 General Non-Resident return. The S.216 return for recapture in the year of sale is NOT optional, it's mandatory.
Nelsona, already mentioned this above. I think you are getting confused with the 25% withholding rate. The 25% is just a flat withholding tax. You do not have to file a S.216 return, it's an elective return that is completely optional. The 25% withholding is your final tax obligation to Canada if you want it to be. However, you would be crazy not to file the S.216, because you can use your expenses and pay slightly less tax at 22.2% instead of 25%.
When you sell as a non-resident, you will pay the exact same 22.2% provided that the TAXABLE gain (50% of total gain) is less than $44,701. The only difference is the gain will be reported on a T1 General Non-Resident return instead of a S.216 return.
If you depreciate the property, the recapture will go on a S.216 return with your rental income and expenses for the year. This is NOT included on the T1 General Non-Resident return. The S.216 return for recapture in the year of sale is NOT optional, it's mandatory.