If you own real estate in Canada, renting the properties out can be an effective way to make some money while you’re living abroad. The problem is the Canadian tax code can be a little strict when you’re a non-resident earning Canadian rental income. The good news is with some simple planning and paperwork you can minimize the taxes on your rental income so more of it stays in your pocket.
Managing rental property
When you’re collecting Canadian rental income as a non-resident, you need an agent or representative in the country to collect the money on your behalf. If this is all you set up, under the Canadian tax code 25% of your gross rental income would need to go to the Canadian Revenue Agency each month. Gross rental income is the money you take in from your tenants without any sort of adjustment from your monthly expenses.
Instead, if you file Form NR6 at the start of the year, your agent would only need to send off 25% of your net rental income. This is your gross monthly rental income minus your monthly expenses. With this approach, your agent will pay significantly less to the CRA each month so more money will go to you.
Tax benefit of planning
Let’s say you’re renting your Canadian house for $2,000 a month while you’re living abroad and you have $1,600 worth of monthly expenses for maintaining the property. Your gross income is $2,000 a month while your net income is $400 a month ($2,000 – $1,600).
Without filing Form NR6, your representative would have to submit $500 a month to the CRA (2,000 x .25) and would pay $6,000 throughout the year. By filing Form NR6, your representative would only have to submit $100 a month ($400x.25) and would pay only $1,200 throughout the year. You’d avoid $4,800 in unnecessary tax payment by filing this form.
Preparing Form NR6
You need to file Form NR6 at the start of your tax year for the rental property. This would be the first month you start renting your property or January for properties that were rented the year before.
On this form, you need to fill out your property’s address, your estimated gross rental income, your rental expenses, and your net income after expenses. If you own multiple rental properties, you’ll need to record this for each one. After you fill in this information, both you and your agent/representative need to sign the form.