What happens if I file my Section 216 rental return late?
Two separate things. The late-filing penalty is charged on a balance owing: for the 2025 tax year it is 5 per cent of that balance, plus 1 per cent of it for each full month the return is late, to a maximum of 12 months. Where the CRA had issued a demand to file and had charged a late-filing penalty in any of the three preceding tax years, the figures are 10 per cent plus 2 per cent for each full month, to a maximum of 20 months. The other consequence is usually the larger one. The election carries its own deadline, separate from the ordinary filing date, and once it has gone the flat withholding on gross rent stands.
Is there a penalty if my rental return shows a refund due?
The late-filing penalty is calculated on a balance owing, so where the net rental result leaves nothing owing there is nothing for the percentage to be applied to. That is cold comfort on this particular return, because the exposure on a late Section 216 year is not really the penalty. It is the election itself. The election is what makes mortgage interest, property tax, insurance and repairs deductible at all, and it has a deadline of its own. Miss that and the flat charge on the gross rent is final, which on a property running at a loss is the whole of the loss.
Does filing late mean I lose the rental expense deductions?
It can, and that is the point most owners are not told. The deductions are not a standing entitlement that a late return merely delays. They arrive with the election, and the election has a deadline that sits separately from the ordinary filing date for a return. Where a year is late but the election is still available, the costs go in and the year is taxed on net profit at graduated rates. Where the election has lapsed for that year, the withholding already taken on the gross rent stands, whatever the property actually earned after interest and repairs.
I have filed late more than once, does the penalty double?
No, and the trigger is narrower than most people expect. Repeated lateness on its own does not move you to the higher rate. For the 2025 tax year the higher rate applies where the CRA issued a demand to file and charged a late-filing penalty in any of the three preceding tax years. Both limbs have to be present. When they are, the charge is 10 per cent of the balance owing plus 2 per cent for each full month, to a maximum of 20 months, rather than 5 per cent plus 1 per cent to a maximum of 12 months. Note the cap moves from twelve months to twenty, which is not itself a doubling.
Does the late filing penalty compound while the return sits unfiled?
The penalty does not compound. Interest does, daily, on the unpaid balance. So on an old rental year the penalty is a fixed calculation once the balance owing is known, while the interest keeps growing for as long as the balance is outstanding. In practice this changes the order of work: establishing the net rental figure and paying down whatever is genuinely owing stops the part that grows, and the penalty on the late return can then be dealt with as a known amount rather than a moving one.
Should I still file a rental year that is several years late?
Establish whether the election is still available for that year before doing anything else, because it decides what the filing can achieve. If it is, the year can be put on a net basis and the tax withheld on the gross rent brought into account against the tax on the actual profit. If it is not, a return will not recover withholding that has become final, and the work is better aimed at the years where it can. The answer is often different for each unfiled year in the same set, so they are worth assessing individually rather than as a batch.
Can I set up a trust that works in two countries?
You can, but the two systems classify and tax trusts differently enough that a structure which is efficient in one is often a reporting problem in the other — a Canadian family trust with a US beneficiary, or a US revocable trust holding Canadian property, are the classic pairs. Canada's twenty-one-year deemed disposition, the US grantor rules and each country's reporting have to be read together, before drafting rather than after. See cross-border wills and trusts.
What is Form 1042-S and what do I do with it?
The statement a US payer issues to a non-resident showing US-source income paid and tax withheld — the non-resident counterpart to a 1099. Use it two ways. In your own country it evidences the US tax paid for credit purposes. And where the rate withheld was higher than your treaty entitlement, or the income was not taxable at all, the way back to the money is a US non-resident return claiming the refund. Check the income and exemption codes before assuming the rate was right. See Form 1042-S.
