What You Need to Know About Non-Resident Tax (NR4)
Did you know that anyone owning real estate in Canada, who is classified as a non-resident of Canada as defined by the Income Tax Act of Canada, must pay Non-Resident Tax on gross revenues received from the rental property. Generally this amounts to 25% of the total gross rents received from rental properties, although exemptions and lower rates may apply depending on your situation. How you can you ensure you are getting the best return from your rental investment if you are a non-resident?
Filing non-resident tax (NR4)
At RE/MAX of Nanaimo Property Management we will make the monthly remittance and complete and file the NR4 and NR4 Summary to Revenue Canada on your behalf. This means, we will deduct the 25% required tax withholding from your monthly rents and submit it to the taxing authority directly.
But how does the NR tax system work? If we collect $1600 in gross rent, then 25% of that amount, or $400, would be withheld from the monthly proceeds that we send to you. Instead, we will complete and file the required monthly NR 4 forms, and remit the form along with the $400 to be applied to your Non-Resident Tax account with Revenue Canada.
Non-resident tax deductions
The non-resident tax deductions must be received by Canada Revenue Agency on or before the 15th of the month following the month in which the revenue was received. For instance, for rent collected in November, the forms and funds must be received by Revenue Canada no later than December 15.
Failing to file the NR4 information or remit the required amount can result in penalties. First you can be assessed for the amount of tax that was not deducted. Then, additional penalties can be levied on top of that – these typically start at 10% of the amount that was not deducted and can increase to 20% on second or later failures. The minimum penalty for late filing the NR4 information return is $100 and the maximum penalty is $7500.
Property management benefits
As a client of RE/MAX Rental Pros you can be assured that we will complete, file and remit the NR4 forms and deductions on your behalf. The deductions will be noted each month on the statement of income and expenses you receive from our office, so you’re always aware of the deductions being sent to Canada Revenue Agency on your behalf. At year end we will complete an NR 4 Summary to be filed with Revenue Canada also. Once you complete and file a Canadian Income Tax return for the year and claim eligible deductions like maintenance, taxes, management fees, etc. it is likely you will receive a tax refund from Revenue Canada. [su_divider]
If you are a non-resident and have property that you would like us to manage please call our office at (250) 751-1223 for a free consultation.
If you have specific questions about Non-Resident Tax or whether any exemptions apply to you, we recommend you speak with your accountant, or check with Canada Revenue Agency directly at 1-855-284-5946 (from anywhere in Canada or the US), or 613-940-8499 (from outside Canada or the US). You may also refer to their website at www.cra.gc.ca/business and select the topic “International and non-resident taxes”.