How to File a Section 216 Tax Return for Non-Residents

A Section 216 election is an option under Canada’s Income Tax Act available to non-residents who receive income from Canadian sources. Its primary function is to allow these individuals to file a Canadian tax return to be taxed on their net rental or timber royalty income. Without this election, non-residents are subject to a withholding tax on their gross income, which can result in a higher tax obligation.

The election provides a method to reduce the overall Canadian tax paid. By filing a specific return, the non-resident can deduct eligible expenses from their gross income, calculating a net figure on which tax is owed. This process often leads to a more favorable tax outcome and may result in a refund of taxes that were withheld throughout the year. This return is a separate filing and does not replace any other Canadian tax filing obligations a non-resident might have.

Eligibility for the Section 216 Election

To make a Section 216 election, an individual must meet specific criteria established by the Canada Revenue Agency (CRA). The foundational requirement is that the person must be a non-resident of Canada for tax purposes for the entire duration of the tax year in question. This means the individual does not have significant residential ties to Canada and permanently lives outside the country.

The type of income received is the other major qualifying factor. The election is specifically designed for non-residents who have earned income from renting out real or immovable property located in Canada. It also applies to individuals who have received Canadian timber royalties. If a non-resident has multiple Canadian rental properties, all income and expenses from all properties must be consolidated and reported on a single Section 216 return.

Information and Documentation Required

You will need a Canadian tax number, which can be either a Social Insurance Number (SIN) or an Individual Tax Number (ITN). An ITN is a unique number issued by the CRA to individuals who are not eligible for a SIN but need to file a Canadian tax return.

An NR4, Statement of Amounts Paid or Credited to Non-Residents of Canada slip, details the gross income earned and the amount of non-resident tax that was withheld. A comprehensive record of all rental income received for each property is also necessary.

Detailed records of expenses are needed to calculate net income. Common deductible expenses include property taxes, insurance, maintenance and repair costs, and fees paid to property managers or agents. For those with a mortgage on the property, the interest portion of the payments is deductible, but the principal payments are not.

Another deduction is the Capital Cost Allowance (CCA), which is Canada’s version of depreciation for tax purposes. To calculate CCA, you will need the original cost of the building and the date the property first became available to rent.

Completing the T1159 Return

The election is made using Form T1159, Income Tax Return for Electing Under Section 216. This form can be downloaded from the CRA’s official website. It is important to use the correct version of the form for the specific tax year you are filing for.

The calculation of net rental income does not occur directly on the T1159. Instead, you must first complete Form T776, Statement of Real Estate Rentals. All rental revenues are reported, and all eligible expenses, such as property taxes, insurance, and maintenance, are listed and subtracted from the gross income.

The Capital Cost Allowance (CCA) is also calculated and claimed on Form T776. Using the property’s cost and acquisition date, you can determine the allowable deduction for the year. The resulting net income or loss from the bottom of Form T776 is then transferred to the T1159 return.

On the T1159, you will report the net rental income from Form T776. You will also enter the total non-resident tax withheld, as shown on your NR4 slip. This amount is credited against any tax payable on your net income. The final calculation will determine whether you are entitled to a refund or if you have a balance owing.

Filing the Return and Next Steps

The standard filing deadline for a Section 216 return is two years from the end of the calendar year in which the rental income was received.

A different deadline applies if you have previously filed Form NR6, Undertaking to File an Income Tax Return by a Non-Resident. This form allows your agent to withhold tax on your estimated net income rather than the gross amount. If the CRA approved your Form NR6 for the year, your Section 216 return is due by June 30 of the following year. Missing this earlier deadline can invalidate the NR6 agreement, potentially leading to an assessment for the full 25% tax on gross income.

The completed return must be mailed to the specific tax centre designated for processing non-resident filings. The correct address can be found on the CRA website or within the T4144 guide.

After filing, you should expect to receive a Notice of Assessment (NOA) from the CRA. The NOA is the official document that summarizes the CRA’s review of your return and confirms the final outcome, such as a refund or an amount owing. You can expect the NOA within a few months, with any applicable refund issued shortly thereafter.