Cdn non-resident renting Cdn property - forgot withholding

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johnsmith
Posts: 6
Joined: Mon Jan 23, 2017 2:21 am

Cdn non-resident renting Cdn property - forgot withholding

Post by johnsmith »

Hey guys. Moved to the US at end of 2015 and started renting my Canadian property around April 2016 (I've always been a Cdn citizen/resident/taxpayer before that and the Cdn property was my primary residence). At the time I rented my Cdn house in April 2016, I was still a "non-resident alien" for US federal tax purposes. However, a few months later, I of course became a resident alien in US after the 183 day significant presence test was satisfied.

Re: Cdn rent, I am caching the cheques from tenant directly - and didn't realize that there was a tax withholding requirement of 25% in Canada.

My expenses on the house are of course interest I pay the lender, property taxes, and some repairs I had to do (didn't really collect any receipts - I just wired money to the repair guy, plumber, etc.).

I am starting to think about my 2016 now, which will be due in April. I will be filing as a resident alien in California for 2016. Completely realize that I need to declare my Cdn rental income on my US taxes - and this is fine. However, I am uncertain how I should proceed for my Cdn 2016 taxes - since I didn't appoint a withholding agent / remit 25% to the CRA.. Completely unintentional of course and PwC who "advised" me during my 2015 didn't really say anything about this.. Thoughts / advice re: how I should proceed?

Thx.
nelsona
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Post by nelsona »

You became a non-resident of canaf for tax purposes on the day you left Canada, regardless of the date your met SPT in US. You should have already filed a departure return for 2015. Did you? You lived in US, not Canada.
If not you will have to do 2 returns for Canada for 2016. One wil be your exit return and one will be the section 216 return on which you calculate the tax owed Canada on rent. You also need to start asap paying 25% withholding monthly to CRA, by someone in Canada.
You should also file an NR6 to reduce the required withholding.

This is all explained on the CRA website.

You will of course have to report this income on your 1040 every year as well.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
johnsmith
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Joined: Mon Jan 23, 2017 2:21 am

Post by johnsmith »

Hi nelsona. Thx for the info. A few questions. Btw, I did file my 2015 tax return as a resident tax return since I only left Canada at the very end of the year. And I did "not" have any Canadian income for the remainder of 2015 since I only rented my house out a few months later in 2016.

1) Re: section 216 filing, I found following link: http://www.cra-arc.gc.ca/tx/nnrsdnts/nt ... y-eng.html

Seems like this type of accidental oversight is common - which I am presuming is the reason why CRA would allow this "one time" opportunity? Also, by virtue of filing section 216, I would imagine I only need to pay taxes on the "net" income and not the "gross" income as per this form: http://www.cra-arc.gc.ca/E/pbg/tf/t1159/t1159-16e.pdf

2) And I did not file a departure return. Only return I filed was the 2015 regular return. I left a few weeks before end of 2015. Do I need to file something else? I checked for such a form, but didn't see it. If you can post the link, much appreciated.

3) For 2017, we are already in January.. Related to (1) above, how can I ensure that I only pay for "net" rental taxes and not "gross"? Related to this question, what's the purpose of NR6 form for me moving forward?

Thanks again.
nelsona
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Post by nelsona »

2. You should have filed a departure return for 2015. There was nothing that "happened" in 2016 that you can point to as your exit date. Did you report US income oyou earned at the end of 2015? you would have had to unless you put an exit date. A departure return is simply the regular return that you filed, BUT with a departure date and perhaps some exit tax. There is an emigrant webpage at CRA. I would simply amend my 2015 return, and then have no need to fiel a 2016 return (other than rental 216 return).

1. Yes, with 216 you only pay on net. But until you file an NR6, you must still have 25% withheld monthly.

3. NR6 IS how you reduce withholding. Read the form. But until it is approved, it's 25% gross. either way, you file 216 at end of year.

Remember to report your rental income in US. It is not done the same as in Canada, because in US you MUST depreciate, and in Canada you CAN depreciate. You don't want a situation where you owe money in Canada, but not in US, so most depreciate in both countries.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
johnsmith
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Joined: Mon Jan 23, 2017 2:21 am

Post by johnsmith »

Hey Nelsona. Very helpful response - thanks for that.

[In order you listed]
2) yes, I did have an exit date on my 2015 return. Used turbotax and it asked me where I was on Dec 31st, 2015 - said I was in the US an indicated my departure date. So, I am good with respect to "exit"?

1) Ok, got it. Looks like this is where CRA's one time policy exception would kick in for me to file the 216 return after the fact. Now, given I also haven't filed a NR6 for 2017 before Jan 1, 2017, what d you think I should do for 2017 calendar year? Do you think I would have to pay 25% for the whole year - and then get a reimbursement based on net when I file section 216 for 2017?

3) Ok got it. Makes the relationship b/w NR6 and section 216 clear.
nelsona
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Post by nelsona »

2) yes, but only if you also reported your deemed dispositions, and your list of all assets on that date. For others, don't use artificial departure dates. If you left on the 26th, put the 26th. So you are sure the date appears on page 1, and that you personal credits were pro-rated? Seems to me you would have noticed this last year. And CRA didn't ask you for your personal property list? There is a per day fin for not filing it. You may have answered the question incorrectly, becuaase the real question is "Where were you living on Dec 31, 2105, OR THE LAST DAY YOU LIVED IN CANADA" (which would be you last province of residence, not the US. You may have incorrectly filed a non-resident return rather than adeparture return.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

1). Yo uare not filing 216 "after the fact". It is only due in june of this year. It is the payment of withholding "after the fact" that they may allow this time. the withholding and the 216 are 2 separate processes.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
johnsmith
Posts: 6
Joined: Mon Jan 23, 2017 2:21 am

Post by johnsmith »

Thx nelsona.

2) Re: deemed dispositions, I didn't declare any b/c all of my assets seemed to fall into the exempted categories:
http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... ng.html#nt
[quote][i]If you ceased to be a resident of Canada in 2016, you were deemed to have disposed of certain types of property at their fair market value (FMV) when you left Canada and to have immediately reacquired them for the same amount. This is called a deemed disposition.

This applies to most properties. Some of the exceptions are:

Canadian real or immovable property, Canadian resource property, and timber resource property. For more information, go to the note below;[/i][/quote]

[quote][i]If the fair market value (FMV) of all the property you owned when you left Canada was more than $25,000, complete Form T1161, List of Properties by an Emigrant of Canada, to list all of your properties inside and outside Canada and attach it to your 2016 return.

Exclude from your list any personal-use property valued at less than $10,000. Examples of personal-use properties are:

clothing;
household goods;
collectibles; and
cars.[/i][/quote]

[quote][i]Penalty

File your tax return by the filing due date. The penalty for failing to file Form T1161 by the due date is $25 per day you are late. There is a minimum penalty of $100, and a maximum penalty of $2,500.[/i][/quote]

As you said, there is a penalty, but my property (minus personal use property) was definitely less than $25K (we were not ones for really "expensive" stuff). The house was obviously still there, but that seems to be an exemption as per above - "Canadian real or immovable property". Something else I am missing?

And while my T1 (via turbotax) shows that "Province or territory of residence on Dec 31, 2015 = Non-Resident", later on in the T1 it also has a checkmark beside "I was deemed resident of Canada because I stayed for 183 days o more in 2015".

1) Sorry, just to clarify, I was talking about the rent I am collecting in 2017 itself. It's January 2017 already and I cleared didn't file a NR6 for 2017 (and also for 2016). I can file section 216 with net after the fact due to their admin policy before June 2017 - for the 2016 tax year. My question was, what do I do for the rest of 2017, given I did not file a NR6 for 2017 also. Should I sent a NR6 after the fact for 2017 and see what happens or will I have to pay gross for the remainder of 2017 and get a refund when I file 2017 taxes before June 2018?

Thx again!
johnsmith
Posts: 6
Joined: Mon Jan 23, 2017 2:21 am

Post by johnsmith »

Also, further to my above response, if the house is under by my name and my wife's name, does that impact how we file section 216 (and NR6) forms? Can one us file it or do we need to split and claim 1/2 each? Thanks!
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

Regardless of what you do with 216 and NR6, you MUST be NOW sending 25% of your rent to CRA on a monthly basis. You have no choice in this and need to be doing this now.

NR6 an 216 will take take of themselves in due timw, but right now you are in violation of the regs for non-residents receiving rental income, and need to address this.

Departure tax is capaital gains tax. If you had none fine. If you had no listed property, fine. Just so you know about the forms, which you did not.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
johnsmith
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Joined: Mon Jan 23, 2017 2:21 am

Post by johnsmith »

Thx. Regarding starting immediate payment for 2017 rents, I am in the process of securing a Cdn resident (family member) to act as my agent - where they would need to sign the NR6 form in section 4.

I don't want to deal with the tenant in the tenant remitting directly as she is pretty busy and it simply won't get done - so the "agent" route is probably the most practical.

In the meantime, can I simply pay directly via online banking (CIBC/RBC, etc.) to my CRA REVENUE TAX INSTALLMENT bill payee? I will be paying directly against my SIN as I do with my regular payments.

But, given I will need to to include a NR4 next year (which agent / Cdn family member an produce), not sure if above is correct approach. B/c agent will get a NR non-resident tax account number to pay against...

Perhaps, I should just explain the situation and send a letter with my 2016 section 216 filing and ask for feedback? Or give them a call? Thx.
nelsona
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Post by nelsona »

It takes very little time to set up an agent. The tenant has nothing to do with it. Have them set up the payment. Again, this is separate from NR6.

When you submit your 216 you WILL get feedback.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
totality6666
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Joined: Sat Nov 18, 2017 6:39 pm

Post by totality6666 »

[quote="nelsona"]2) yes, but only if you also reported your deemed dispositions, and your list of all assets on that date. For others, don't use artificial departure dates. If you left on the 26th, put the 26th. So you are sure the date appears on page 1, and that you personal credits were pro-rated? Seems to me you would have noticed this last year. And CRA didn't ask you for your personal property list? There is a per day fin for not filing it. You may have answered the question incorrectly, becuaase the real question is "Where were you living on Dec 31, 2105, OR THE LAST DAY YOU LIVED IN CANADA" (which would be you last province of residence, not the US. You may have incorrectly filed a non-resident return rather than adeparture return.[/quote]

For the benefit of anyone, it appears that the personal credit need to be pro-rated only if Canada income during the non-resident period is below 90% of world income during that period.

That means that if you moved towards the end of the year and did not work in the US, you don't need to pro-rate.

Here is a non-CRA source, but I also saw this on CRA website (and Turbotax correctly applies this behavior)

https://www.taxcycle.com/Documentation/ ... -residents
totality6666
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Joined: Sat Nov 18, 2017 6:39 pm

Post by totality6666 »

Sorry for reviving this old threat, not sure how I showed up on my front page...
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