- Non-resident withholding tax (technically called Part XIII tax under the Income Tax Act) is a tax collected by the Canadian payer on your behalf.
- Dividends Dividends paid by a Canadian corporation to a non-resident are subject to withholding tax.
- If you receive Canadian income as a non-resident, the Canadian payer must issue you an NR4 slip showing the gross income paid and the amount withheld.
Living outside Canada does not automatically end your relationship with the CRA. If you receive income from a Canadian source — rent from a property you still own in Ontario, dividends from a Canadian company, RRSP withdrawals, a Canadian pension — Canada generally has the right to tax it. The mechanism is non-resident withholding tax, a flat rate deducted at source before you ever see the money.
Understanding which income is caught, what the standard rates are, and how a tax treaty might reduce them is essential if you are a non-resident with ongoing Canadian income.
What Is Non-Resident Withholding Tax?
Non-resident withholding tax (technically called Part XIII tax under the Income Tax Act) is a tax collected by the Canadian payer on your behalf. When your bank, investment dealer, or tenant makes a payment to you as a non-resident, Canadian law requires them to withhold a portion and remit it directly to the CRA. You receive only the net amount.
The standard domestic withholding rate is 25% on most passive income types (as of writing — always verify the current rate with CRA). However, this rate is frequently reduced — sometimes dramatically — by a tax treaty between Canada and your country of residence.
Types of Income Subject to Part XIII Tax
Dividends
Dividends paid by a Canadian corporation to a non-resident are subject to withholding tax. The Canada-U.S. tax treaty reduces the rate for eligible dividends paid to U.S. residents to a lower rate; other treaties have their own rates. Verify the treaty rate that applies to you with a cross-border tax professional.
RRSP, RRIF, and Pension Withdrawals
Withdrawals from an RRSP or RRIF by a non-resident attract withholding tax. The rate may differ depending on the size of the payment and the applicable treaty. Canada Pension Plan (CPP) and Old Age Security (OAS) payments to non-residents are also subject to withholding, with treaty reductions often available.
Rental Income from Canadian Real Property
Gross rental payments to a non-resident are subject to 25% withholding by default — your tenant or property manager is legally required to withhold and remit. However, non-residents can elect to file a Canadian tax return under a specific provision (a "Section 216 return") and pay tax on their net rental income (after expenses) instead of the gross amount. This often results in a significantly lower tax bill and a refund of excess withholding.
Interest
Most interest paid to non-residents is exempt from Part XIII tax under Canadian domestic law (there are exceptions, particularly for participating or contingent interest). Tax treaty provisions may modify this further.
Royalties
Royalties paid to non-residents attract withholding tax, with treaty reductions commonly available for intellectual property, patents, copyrights, and similar payments.
Management Fees and Service Fees
These fall under different provisions. Certain management or administrative fees paid to non-residents attract withholding; the details depend on the type of service and the applicable treaty.
The NR4 Slip
If you receive Canadian income as a non-resident, the Canadian payer must issue you an NR4 slip showing the gross income paid and the amount withheld. You will need this slip for your home-country tax return (if that country requires you to report worldwide income) and for any Canadian elective filing you choose to make.
How Tax Treaties Reduce Withholding
Canada has tax treaties with dozens of countries. These treaties set maximum withholding rates that Canada can apply to various income types for residents of the treaty country. Common treaty reductions include:
- Dividends: often reduced from 25% to a lower treaty rate
- Pensions: often reduced, with some treaties exempting certain amounts
- Royalties: often reduced
To claim a treaty rate, you must inform the Canadian payer of your country of residence and provide whatever documentation the payer requires (often a self-declaration or a CRA form). If you do not claim the treaty rate, the payer will withhold at the domestic 25% rate, and you will need to request a refund from the CRA.
Elective Returns: Getting Money Back
Non-residents who have had excessive withholding, or who want to report Canadian income on a net basis, can file optional Canadian tax returns:
- Section 216 return — for rental income, to pay tax on net income instead of gross
- Section 217 return — allows certain non-residents to include Canadian retirement and pension income in a Canadian return and benefit from personal tax credits, which may reduce overall tax compared to flat withholding rates
These returns have specific deadlines (as of writing — verify current filing deadlines with CRA). Missing the deadline can forfeit the right to file.
Obligations of the Canadian Payer
One often-overlooked aspect: it is the Canadian payer — your tenant, your investment dealer, your former employer — who is legally responsible for withholding and remitting. If they fail to do so, they face penalties. This is why tenants of non-resident landlords are sometimes reluctant to make rental payments without withholding arrangements in place.
If you own Canadian rental property and manage it yourself from abroad, you typically need to appoint a Canadian agent to handle the withholding and remittance obligations on your behalf, or make arrangements directly with the CRA.
Frequently asked questions
I am a non-resident and my RRSP is still in Canada. What happens when I withdraw?
Withdrawals will be subject to non-resident withholding tax. If your country of residence has a tax treaty with Canada, the treaty rate may apply. You must inform your financial institution of your non-resident status; withholding at the wrong rate can create complications in both countries.
My tenant pays me rent directly. Do they have to withhold?
Under Canadian law, a tenant paying rent to a non-resident landlord is technically required to withhold 25% and remit it to the CRA. In practice many tenants are unaware of this obligation. Non-resident landlords should either appoint a Canadian agent to handle withholding or make alternative arrangements with the CRA to avoid putting their tenant in a difficult position.
Can I recover over-withheld tax?
Yes. If more tax was withheld than you owe — for example, because the payer did not apply a treaty rate, or because you are entitled to deduct rental expenses — you can file an elective Canadian return or a CRA T1 non-resident return and claim a refund of the excess.
Does withholding tax apply to the sale of Canadian property?
The sale of Canadian real property by a non-resident is handled separately through a section 116 clearance certificate, not Part XIII withholding tax. That process is covered in our companion article on selling Canadian real estate as a non-resident.
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