Canada taxes most passive payments to non-residents at a flat 25% withheld at source — dividends, interest, rent, royalties, pensions, RRSP withdrawals. A tax treaty often cuts that rate, but only if the paperwork supports it. If the payer withholds too little, the CRA assesses the payer for the shortfall.
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Part XIII of the Income Tax Act imposes a flat 25% on Canadian-source amounts paid or credited to non-residents. It is a gross tax — no deductions, no graduated rates, no personal credits. The Canadian payer withholds it, remits it to the CRA by the 15th of the month following payment, and issues an NR4 slip. For most payments this tax is final; the non-resident files no Canadian return and gets nothing back.
Canada's tax treaties reduce the rate for many payment types. Under the Canada–United States treaty, for example, dividends are commonly reduced to 15%, or 5% where a corporate shareholder holds a sufficient stake, and most interest is reduced to nil. Rates vary treaty by treaty and by category of income, so the country matters.
The reduced rate is not automatic. The payer must have documentation supporting the recipient's residence and treaty entitlement — Form NR301 for individuals and companies, NR302 for partnerships, NR303 for hybrid entities. Withhold at a treaty rate without that on file and the CRA can assess you for the difference plus interest, then leave you to chase the non-resident for it.
Rent on Canadian real estate paid to a non-resident is subject to 25% withholding on the gross rent, not on the profit. The Canadian agent or the tenant must withhold and remit monthly by the 15th and file an NR4 information return. Tenants who pay a non-resident landlord directly are legally the withholding agent, and are on the hook if they do not withhold — a point that surprises tenants and landlords equally.
For most owners, 25% of gross rent is far more than the actual tax. The fix is Form NR6, filed before the first rental payment of the year. Once the CRA approves it, the agent withholds 25% of net rental income after expenses instead of gross, which usually reduces the cash trapped with the CRA dramatically.
Either way, the non-resident can then elect under section 216 to file a Canadian return reporting rental income on a net basis at ordinary graduated rates and claim a refund of the excess withheld. If an NR6 was approved, the section 216 return is due by June 30 of the following year and filing is mandatory. Without an NR6, you generally have two years from the end of the year to file, and the return is optional.
When a non-resident disposes of taxable Canadian property, including Ontario real estate, section 116 applies. The vendor notifies the CRA and pays 25% of the gain — proceeds less adjusted cost base — or posts acceptable security, and the CRA issues a certificate of compliance. Notification is due no later than 10 days after the disposition. Miss it and the penalty is $25 a day, minimum $100, maximum $2,500.
Until that certificate is produced, the purchaser is entitled and effectively required to withhold 25% of the gross proceeds — 50% for certain categories of property, including some depreciable and rental property — because the purchaser becomes personally liable to the CRA for the vendor's tax if no certificate is issued. This is why Ontario real estate lawyers hold back a substantial slice of the sale price on closings involving a non-resident vendor, and why those holdbacks can sit in trust for months.
The certificate is not the end of it. Section 116 collects a deposit against tax; the actual liability is worked out on a Canadian income tax return for the year of sale, which the non-resident still has to file. Where capital cost allowance was claimed on a rental, recapture is taxed as ordinary income and often exceeds the 25% held back.
Usually not. Part XIII is a final tax on gross amounts and there is no return to file for most of it. Two elections change that. Section 216 lets a non-resident with Canadian rental or timber royalty income file and be taxed on net income at graduated rates, which almost always produces a refund. Section 217 does something similar for certain Canadian benefits and pensions, where filing on a net basis produces a better result than 25% of gross. Both have filing deadlines, and both are elections you have to make — nobody applies them for you.
Yes, if you pay the non-resident landlord directly and no Canadian agent stands between you. The withholding obligation falls on the person paying the amount, and the CRA has assessed tenants for failing to withhold, with interest and penalties. Protect yourself: ask where the landlord is resident, and if they are non-resident, either withhold 25% and remit it monthly, or insist they appoint a Canadian agent who takes on the obligation in writing. Get that arrangement documented before the tenancy starts.
That is a different regime. Salary and wages for services performed in Canada are subject to Regulation 102 payroll withholding, not Part XIII, and the non-resident employee may have to file a Canadian return. A treaty may exempt the income, but the withholding obligation still applies unless a waiver is obtained from the CRA before payment. Short-term business travellers, cross-border directors and non-resident contractors performing services in Canada — the latter subject to Regulation 105 withholding on fees — all need this checked in advance.
Plan for months, not weeks. The application requires the CRA to process a form supported by the purchase and sale documents and proof of adjusted cost base, and processing times have been long. That is why the practical sequence is to start the section 116 application as early as possible — the rules allow notice of a proposed disposition before closing — and to build a holdback and a release mechanism into the agreement of purchase and sale rather than negotiating it after the money is already sitting in a lawyer's trust account.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.