- A payer must generally withhold 25% non-resident tax on gross rental income paid to a non-resident landlord.
- A non-resident can elect under section 216 to be taxed on net rental income instead.
- Ontario's Non-Resident Speculation Tax is 25% for agreements after October 24, 2022, and applies to foreign nationals.
- U.S. reporting is a separate subject, so speak to the IRS or a cross-border tax professional.
If you are a U.S. citizen who has bought, or inherited, a rental property in Ontario, you may be dealing with two tax systems at once. Canada has its own rules for rental income paid to non-residents, and Ontario has a tax aimed at some foreign buyers.
This article walks through the main Canadian points: withholding, the election to be taxed on net income, and the speculation tax. It does not cover U.S. tax law. Your exact position depends on where you live, how you hold the property and how you got it, so use this as a starting point for questions to put to a professional.
Withholding tax on rent paid to a non-resident
If you live outside Canada, the person paying you rent, or their agent, must withhold 25% non-resident tax on the gross rental income. Gross means the rent before expenses such as mortgage interest, repairs or property tax.
The payer files an NR4 return on or before the last day of March and remits the withheld amount by the 15th of the following month. If you use a property manager, the manager may be the agent responsible for this, so confirm who is handling it.
The section 216 election: tax on net rental income
Because 25% of gross rent can be much more than the tax on your actual profit, a non-resident can elect under section 216 to be taxed on net rental income instead. The election is made on Form T1159.
- The return is due within 2 years of the end of the year the income was paid.
- It covers all of your Canadian rental properties.
- It is not filed online.
- Form NR6 should be sent to the CRA on or before January 1 or before the first rental payment.
How the NR6 and the T1159 work together in your situation is worth confirming with an accountant, so plan these dates early.
Ontario's Non-Resident Speculation Tax
Ontario's Non-Resident Speculation Tax applies to some purchases by foreign nationals. The rate is 25% effective October 25, 2022, and agreements made on or before October 24, 2022 may be subject to a lower rate. A foreign national is an individual who is not a Canadian citizen or permanent resident. A U.S. citizen who is not a permanent resident of Canada is therefore a foreign national for this purpose.
A rebate may be available if the buyer becomes a permanent resident within four years of registration. Whether the tax applies to a particular transaction, such as a purchase through a company or a trust, depends on the facts and is worth confirming with a real estate lawyer before you sign.
Buying versus inheriting, and U.S. reporting
| Situation | Points to raise with a professional |
|---|---|
| Buying as a U.S. citizen | Whether the speculation tax applies, withholding on rent, and the section 216 election |
| Inheriting a rental | How the estate is handled, who receives the rent, and withholding on rent going forward |
| Selling later | Tax on the sale and any withholding on it; get advice before listing |
| U.S. tax obligations | Reporting to the IRS, which is separate from Canadian rules |
If you inherit a property, the speculation tax rules for a purchase may not fit the situation in the same way, and estate and tax questions come into play. Confirm the details with a lawyer. U.S. reporting is a separate subject from Canadian rules, so speak with the IRS or a cross-border tax professional about how Canadian rental income is reported there.
What to do next
- Confirm whether you are a foreign national for Ontario purposes, meaning not a Canadian citizen or permanent resident.
- If buying, ask a real estate lawyer whether the 25% speculation tax applies before you sign.
- Decide who will pay you rent and withhold, and make sure they know about the 25% requirement.
- Ask an accountant whether the section 216 election makes sense, and note the NR6 and T1159 dates.
- Keep records of rent received, expenses and any tax withheld.
- Speak to the IRS or a cross-border tax professional about U.S. reporting.
Frequently asked questions
Does a tenant in Ontario have to withhold tax from my rent?
The payer or their agent must withhold 25% non-resident tax on gross rental income paid to a non-resident. If a property manager collects rent for you, they may handle this, so confirm it in writing.
Can I be taxed on my profit rather than gross rent?
Yes. A non-resident can elect under section 216 using Form T1159 to be taxed on net rental income. The election covers all of your Canadian rental properties and is not filed online.
Do I pay the Ontario speculation tax as a U.S. citizen?
It can apply to a foreign national, meaning an individual who is not a Canadian citizen or permanent resident, at 25% for agreements after October 24, 2022. Whether it applies to your deal depends on the facts, so confirm with a lawyer.
Do I report my Ontario rental income to the IRS?
U.S. reporting is outside Canadian rules, so this article cannot say what you must file. Speak to the IRS or a cross-border tax professional.
Sources
- CRA – T4061 NR4 guide — canada.ca
- CRA – Rental income non-resident tax: filing and reporting — canada.ca
- Ontario.ca – Non-Resident Speculation Tax — ontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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