I live abroad and rent out my Canadian condo, what do I file?
There are two routes and they produce different amounts of tax. Left alone, Canadian tax on your rent is collected by withholding on the gross rent as it arises, and that withholding is the end of the matter. The alternative is the elective return under Section 216, which taxes the net rental profit at graduated rates and treats what was already withheld as money on account. On a mortgaged property the second route is usually cheaper by a wide margin, because gross rent and rental profit are very different figures. The election is a filing you make, not a status you hold.
Why is tax withheld on my gross rent and not my profit?
Because withholding is a collection mechanism, not a calculation of your liability. It is applied to the rent at the point it arises, by someone who has no way of knowing what your interest, property taxes, insurance and repairs will come to for the year. Collection on a gross figure almost always exceeds the eventual liability, and recovering the difference is a filing rather than a request. The elective return is how that difference is worked out and claimed. Until it is filed the gross-basis withholding stands, which is why a property running at a loss can still have tax collected on it.
Can I deduct mortgage interest and repairs as a non-resident landlord?
On the elective return, yes: the ordinary expenses of earning the rent come off, including interest on the money borrowed to buy the property, property taxes, insurance, repairs and management fees. That is the whole reason the election exists. Capital cost allowance is a separate decision rather than an automatic one, because it cannot be used to create a rental loss and because claiming it affects your position when the property is eventually sold. Keep invoices in a form that shows what the work actually was; on a rental property the line between a repair and an improvement is where most of the argument happens.
My tenant pays me directly, who has to withhold the tax?
The obligation sits on the person paying the rent, or on the agent handling it in Canada, and it attaches to each remittance as it arises. A tenant paying a landlord who lives abroad is very often unaware of it. That does not make the tax go away: the amount remains collectible and arrears can be pursued from either side. Appointing an agent changes who carries the mechanics. It is also the route to having the withholding calculated on an estimate of the net amount instead of the gross rent, which requires the agent to take on responsibility for getting it right.
Can I still file a Section 216 return for past years?
Sometimes, and it depends on what was done at the time rather than on how much you would save. The window for making the election is not open indefinitely, and it is shorter where the withholding was already being handled on the net basis under an agent's undertaking than where it was not. Where the window has closed, the gross-basis withholding is the final tax for that year and there is no route back. That asymmetry is why the first thing to establish on an arrears file is the dates, before anyone computes what a net-basis return would have produced.
Do I file a Section 216 return when I sell the property?
The sale is a separate matter with a process of its own. Section 216 deals with the rent while you own the property; a disposition by a non-resident goes through its own clearance and reporting route, and the tax collected on the way is again calculated on a gross figure rather than on your gain. The two interact, because the rental years determine the base you carry into the sale, including the effect of any capital cost allowance claimed along the way. Deal with the clearance side on its own timetable rather than assuming the rental return covers it.
How do I report the sale of a foreign property?
On your residence-country return, as a disposition, with proceeds and cost base converted at the rates for their own dates. Separately, the country where the property sits may require its own return and may hold back tax at closing until a clearance or certificate is issued — Canada does this for a non-resident vendor, and the United States withholds on a foreign seller of US real property. Those steps have their own deadlines, often before closing. See clearance certificates on a property sale.
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.
