Section 216 Non-Resident Rental Canada 2026 | NR6 + T1159 CPA Guide
Reviewed by Bader A. Chowdry, CPA, CA, LPA on
Last updated: July 30, 2026. Author: Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA Professional Corporation, Mississauga.
CRA rental income audit Ontario in one line: default Part XIII withholding is 25% of gross rent, and a Section 216 election is what brings it back to tax on net income.
Quick answer (48 words): A non-resident who owns a Toronto rental generating $60,000 gross rent loses $15,000 to default 25% Part XIII withholding. Section 216 election with NR6 undertaking reduces withholding to roughly 25% of net rental income — often $1,000-$3,000 — and the balance refunds on T1159. Insight Accounting CPA files both.
Why Section 216 matters for non-resident GTA rental owners
Default Part XIII withholding on a non-resident’s Canadian rental is 25% of gross rent. On a $60K/year Toronto rental with $40K of deductible expenses (mortgage interest, property tax, repairs, CCA), the true net income is $20K. Default withholding: $15,000. Section 216 net-income tax: roughly $2,500. That is a $12,500/year cash difference — and the section 216 election is free.
How does the Section 216 election work?
Q: How does the Section 216 election work for non-resident owners of Canadian rental property?
Section 216 of the Income Tax Act allows a non-resident who receives rent from Canadian real property to elect to file a Canadian income tax return (Form T1159) and be taxed under Part I (graduated rates) on net rental income — after deducting all normally allowable rental expenses including mortgage interest, property tax, repairs, insurance, property management fees, and CCA (subject to the loss-limitation cap under Regulation 1100(11)).
Without the election, the default Part XIII withholding tax of 25% on gross rents applies under section 212(1)(d), with no deductions allowed. Section 216 is nearly always beneficial for non-resident owners with real deductible expenses.
Filing mechanics:
- Form T1159 — Section 216 return.
- Filing deadline: June 30 of the year after the rental year (or December 31 if NR6 not accepted for that year).
- Late-filing: penalty and interest apply; loss of Section 216 benefit if filed more than 2 years late.
How does the NR6 undertaking work?
Q: How does the NR6 undertaking reduce withholding on non-resident rental?
Form NR6 is a pre-year undertaking filed by the non-resident and a Canadian resident agent (typically the property manager or accountant). The undertaking states the non-resident agrees to file a Section 216 return for the year, allowing CRA to reduce the required withholding by the property manager to 25% of estimated net rental income instead of gross.
How the mechanics run in practice:
- Non-resident and Canadian agent file Form NR6 by January 1 of the rental year (or before first rent payment).
- CRA reviews and issues an acceptance letter authorizing net-income withholding.
- Property manager remits 25% × (rents received − allowed deductions) to CRA monthly (by the 15th of the following month) via account number NRA XX-XXXX.
- Property manager issues Form NR4 slip by March 31 of the following year showing gross rent, deductions, and withholding.
- Non-resident files T1159 by June 30. Any over-withholding is refunded; any under-withholding is paid with interest.
If NR6 is not filed or is rejected, the property manager must default to 25% of gross rent, and the non-resident recovers the excess via T1159 later (a large working-capital drag).
Insight Accounting CPA files NR6 for every non-resident GTA rental client each January and prepares the annual T1159.
What are the CCA rules for non-resident rentals?
Q: Can a non-resident owner of a Canadian rental claim CCA on the T1159?
Yes. CCA is deductible on the T1159 Section 216 return the same as for a resident. Class 1 at 4% for post-1987 residential rental buildings; Class 8 at 20% for appliances; half-year rule applies to acquisition year.
Section 45(1)(a) change-of-use trap: if the non-resident acquired the property when a resident and became non-resident during ownership, section 128.1(4) triggers a deemed disposition at fair market value on the change-of-residence date. This is often overlooked — the pre-departure CPA should elect out where beneficial under section 128.1(4)(b) or make a plan to file the T1243 departure return.
Regulation 1100(11) cap: CCA cannot create or increase a rental loss. Unused CCA rolls into future years.
Section 116 sale-of-property clearance
Q: What is the Section 116 clearance certificate requirement on sale by a non-resident?
Section 116 of the Income Tax Act requires a non-resident vendor of “taxable Canadian property” (including real estate) to obtain a clearance certificate from CRA before or shortly after closing. The purchaser is required to withhold 25% of gross proceeds and remit to CRA within 30 days unless a Section 116 certificate is provided.
Practical mechanics:
- Vendor’s CPA prepares Section 116 application (Form T2062 for real estate) with estimated capital gain calculation.
- CRA reviews and issues the Section 116 certificate — usually within 30-60 days (target).
- Certificate specifies the amount of proceeds not subject to withholding.
- Purchaser withholds only on the balance (typically 25% of the estimated capital gain × 50% inclusion — effectively 12.5% of the gain).
- Vendor’s T1 (or T1159 stub) reports the actual gain and reconciles the withheld amount.
Miss the Section 116 filing and the purchaser must withhold 25% of the gross sale price. On a $2M property sale, that is $500,000 of cash tied up with CRA until the T1159 is filed and refund issued — often 6-18 months later.
Frequently asked questions
Q: What if I moved out of Canada last year and the property is still rented?
A: Section 128.1(4) creates a deemed disposition of the property at fair market value on the departure date. The pre-departure capital gain is reported on your T1 for the year of departure. The rental income from the departure date forward is subject to Section 216 (or default Part XIII). Filing both the T1 and the T1159 is required.
Q: Can I claim principal residence exemption on a property I later rented?
A: Only for the years I resided in it. Section 40(2)(b) principal-residence formula prorates the gain by the ratio of designated principal-residence years to total ownership years. Section 45(2) election can defer the deemed disposition on change of use — if the election is filed with the T1 for the year of change.
Q: What about a non-resident holding through a Canadian corporation?
A: Different rules. The corporation files T2 and pays Part I corporate tax. The non-resident shareholder faces Part XIII withholding on eventual dividends. This is often less efficient than direct ownership + Section 216, but can help with US-Canada treaty planning for certain fact patterns.
Q: Is HST charged on residential rent to a non-resident?
A: No. Residential rents are HST-exempt regardless of tenant residency, under Schedule V, Part I of the Excise Tax Act.
Related reading:
- Real Estate Investor CPA GTA 2026 pillar
- Non-Resident Withholding Tax Part XIII Canada
- Section 116 Non-Resident Real Estate Sale Case Study
Important — informational only, not advice. Do not use this article to make any decision.
This article is published by Insight Accounting CPA Professional Corporation for general educational purposes only. It is not tax, legal, accounting, financial, or investment advice, and nothing in this article should be relied upon — by anyone, for any purpose — to make a business, tax, financial, accounting, legal, or investment decision.
Tax law, CRA administrative positions, court interpretations, and Ontario provincial rules change frequently, sometimes retroactively, and the content of this article may be incomplete, simplified, out of date, or wrong by the time you read it. The right answer for your specific situation depends on facts this article does not know — your structure, history, jurisdiction, filings, contracts, and goals.
Before acting, engage your own Chartered Professional Accountant or qualified advisor who has reviewed your specific circumstances in writing. Insight Accounting CPA Professional Corporation, the author, and any contributors expressly disclaim all liability — direct, indirect, or consequential — for any action taken or not taken on the basis of this content.
Insight Accounting CPA Professional Corporation is led by Bader A. Chowdry, CPA, CA, LPA — licensed by CPA Ontario under the Public Accounting Act, 2004. To engage us for situation-specific advice, book a free 30-minute discovery call.
Additional CRA & Government Resources
Source: CRA — Electing Under Section 216.
Source: CRA — Form T1159, Section 216 Income Tax Return.
Source: Income Tax Act (Canada).