Non-Resident Taxation in Canada: Overview
Canada taxes non-residents on income earned from Canadian sources. If you are a non-resident of Canada who earns income from Canadian sources — such as rental income from Canadian property, dividends from Canadian corporations, employment income earned in Canada, or retirement benefits — you have specific Canadian tax obligations, including withholding taxes and potentially annual T1 non-resident returns.
Non-resident tax is one of the most complex areas of Canadian tax law. Pathak Professional Corporation in Mississauga provides non-resident tax services for Canadians living abroad and foreign individuals with Canadian income. Call 437-872-7399.
Residency Status: The Foundation of Canadian Taxation
Canada taxes residents on worldwide income — no matter where in the world the income is earned. Canada taxes non-residents only on Canadian-source income. Determining residency status is therefore the threshold question in all international tax situations.
Resident of Canada for tax purposes:
- Ordinarily resident in Canada (your home, family, social ties, and life are in Canada)
- Deemed resident: physically present in Canada 183+ days in a calendar year
- Deemed resident: certain classes of government employees, Crown Corporation employees, or their family members posted abroad
Non-resident of Canada for tax purposes:
- Have established a permanent home elsewhere and have severed significant residential ties to Canada
- Not physically present in Canada for 183+ days
Withholding Tax on Non-Residents: Section 212
When a Canadian payer (individual, corporation, or trust) pays certain types of income to a non-resident, they must withhold a percentage and remit it to the CRA. This is called Part XIII withholding tax:
| Type of Income | Default Withholding Rate | Typical Treaty Rate (Canada-US) |
|---|---|---|
| Dividends from Canadian corporations | 25% | 15% (or 5% for substantial ownership) |
| Rental income (Section 216 election) | 25% of gross rent | Treaty may reduce; election to pay on net income |
| Interest paid to non-residents | 25% (0% for arm’s length interest on bonds) | Typically 0% under Canada-US treaty for arm’s length |
| Pension income (CPP, OAS, RRSP/RRIF) | 25% | 15% under Canada-US treaty |
| Royalties | 25% | 0–10% depending on type under Canada-US treaty |
| Management fees | 25% | Varies by treaty |
| Employment income in Canada | Graduated rates (like residents) | Dependent on treaty and days in Canada |
Canada has tax treaties with over 90 countries that often reduce or eliminate these withholding rates. The payer must apply the correct treaty rate if a valid NR301 (or NR302/NR303) form is provided by the non-resident.
NR4 Slip: Reporting Non-Resident Income
Canadian payers who pay income to non-residents must:
- Withhold the appropriate percentage from each payment
- Remit the withheld amount to the CRA by the 15th of the month following the payment
- Issue an NR4 slip to the non-resident by March 31 of the following year — showing gross income paid, country code, and tax withheld
- File an NR4 Summary with the CRA by March 31 showing all NR4 slips issued
NR4 income type codes tell the CRA what type of income was paid — dividends (11), rental (16), pension (17), RRSP (28), RRIF (28), etc. Using the wrong code is a common filing error that triggers CRA review.
Section 216 Election: Rental Income for Non-Residents
Non-residents who receive Canadian rental income normally have 25% withheld from gross rents. However, the Section 216 election allows non-residents to file an annual Canadian T1 return and pay tax on their net rental income (gross rent minus allowable expenses like mortgage interest, property taxes, and management fees) at graduated Canadian tax rates — which is almost always less than 25% of gross rent.
Section 216 process:
- Appoint a Canadian agent (often your property manager or CPA) to receive rents and remit 25% withholding — OR file Form NR6 requesting permission to withhold on net income
- File a Section 216 return (T1 non-resident) by June 30 of the following year
- Any excess withholding is refunded; any shortfall is paid with the return
Departure Tax: Leaving Canada
When a Canadian resident becomes a non-resident (emigrates), the CRA triggers a deemed disposition of almost all assets at fair market value on the date of departure. This creates a taxable capital gain on all accrued appreciation — the “departure tax”:
- Assets subject to deemed disposition: investment portfolios, private company shares, real estate held as investments, foreign property
- Assets NOT subject to departure tax: Canadian real property, Canadian business assets, RRSP/RRIF/TFSA accounts (not deemed disposed — but TFSA stops earning room and may be taxed in your new country)
- A departure return (T1 with T1161 and T1243 forms) must be filed by April 30 of the year after departure
Frequently Asked Questions: Non-Resident Tax Canada
Do non-residents pay tax on Canadian rental income?
Yes — non-residents who earn rental income from Canadian property are subject to Canadian withholding tax. The default rate is 25% of gross rental receipts, withheld by the payer (tenant or property manager) and remitted to the CRA. However, filing a Section 216 election allows non-residents to be taxed on net rental income at graduated Canadian rates, which typically results in significantly lower tax — particularly when mortgage interest and other expenses are substantial relative to rental revenue. A Canadian CPA must prepare the Section 216 return and manage the withholding arrangement.
Is CPP pension taxable for non-residents of Canada?
Yes — CPP, OAS, and other Canadian pension payments to non-residents are subject to 25% Part XIII withholding tax. Canada’s tax treaties often reduce this rate — the Canada-US treaty reduces it to 15%, and some other treaties provide even lower rates. To apply the treaty rate, the non-resident must notify Service Canada and the CRA. Non-residents who receive CPP or OAS can also choose to file a Section 217 election — filing a regular Canadian T1 return on their Canadian pension income if the graduated rate produces less tax than the flat withholding rate.
What is the difference between an NR4 and a T4 slip?
A T4 (Statement of Remuneration Paid) is issued to Canadian resident employees for employment income. An NR4 (Statement of Amounts Paid or Credited to Non-Residents of Canada) is issued by Canadian payers to non-resident recipients for various types of Canadian-source income — dividends, rental income, pension payments, interest, royalties, and others. The NR4 shows the gross amount paid and the Part XIII withholding tax deducted. Non-residents use the NR4 to report income in their country of residence (the withholding tax may be creditable against their foreign tax bill) and for any Canadian Section 216/217 election returns they file.
If I’m a Canadian citizen living abroad, am I still a tax resident of Canada?
Canadian citizenship alone does NOT make you a Canadian tax resident. Residency for Canadian tax purposes is based on your residential ties — where your home is, where your family lives, where your social and economic connections are strongest. Canadian citizens who have established a permanent home abroad, do not maintain a Canadian residence, and have broken their significant Canadian ties are non-residents for Canadian tax purposes. However, Canadians working abroad for short periods who maintain their family home in Canada, keep Canadian bank accounts, and plan to return are generally still considered residents. If you are uncertain about your residency status, complete Form NR73 (Determination of Residency Status) or consult a Canadian CPA before filing.
