Non-Resident Rental Income Tax Not Paid: Part XIII Catch-Up

Non-resident rental income tax not paid: what was supposed to happen?

Every month, 25% of the gross rent should have gone to the CRA as Part XIII tax: a payer or agent remits by the 15th day of the following month, and an owner collecting home rent with no agent must remit immediately (section 215(1.3)). An NR4 information return is due by the last day of March after each year (Income Tax Regulations, section 202(7); CRA: T4061). If none of that happened, each missed year is now unpaid Part XIII tax plus interest, and possibly penalties.

What is missing usually comes down to three things:

• The tax itself: Part XIII on gross rent for every month since you became a non-resident.
• The reporting: NR4 returns or, for an owner who collected rent directly, a "pro forma" NR4 the CRA prepares on written request.
• The section 216 returns: the optional returns that replace gross-rent tax with tax on net rent, due within two years after each year (CRA: T4144).

A catch-up is not simple when it spans many years, a property manager was involved, the CRA has already written to you, you once had an approved NR6, a sale is coming, or your new country already taxed the rent. Gather a rent ledger by year, the leases, agent statements, bank deposits, expense receipts, any NR4 slips or remittance records, and every CRA letter. How the system works in a normal year is in non-resident landlords.

Who is liable for the unwithheld tax: me, my property manager or my tenant?

The person who had to withhold and did not is liable for the full tax, and can take it back from you. Who that person is depends on how the rent reached you.

These follow section 215: subsection 215(1.2) exempts an individual paying rent for a residential property where someone lives, and 215(6) makes a person who failed to withhold liable for the whole amount, with a right to recover it from the non-resident. Under section 227(8.1), you are jointly liable with that person for the interest. Subsections 215(1.2) and (1.3) were added by the Budget 2025 Implementation Act, No. 1 and apply from August 12, 2024; for earlier rent the Act had no home-tenant exception. A relative who collects rent for you is an "other person" under 215(3), with the same duty as a property manager. The CRA says a payer is liable even if it cannot recover the money (CRA: T4061).

Part XIII is a tax on your rent: a payer or agent who pays it may recover it from you (section 215(6)). Who bears it between you and a property manager does not change what the CRA is owed.

Part XIII catch-up: how much do I owe for the missed years?

Start with 25% of gross rent for each year, plus interest. A valid section 216 return for a year replaces that with tax on net rent after expenses and capital cost allowance (CCA), which is often lower (section 216).

The section 216 return taxes net rent as if it were your only income, with no basic personal amount (section 216(1)(d)). It also cannot create a loss usable in another year (CRA: T4144). The CRA may assess Part XIII tax owed by a non-resident at any time (section 227(10.1)), so old years do not expire on their own. Rent reported on a regular resident return is not a section 216 return and does not settle Part XIII tax (CRA: T4144); see CRA still thinks you are a resident.

Late section 216 return: can I still file for past years?

Possibly, once. The CRA's subsection 216(1) late-filing policy may accept section 216 returns filed more than two years after the end of the year, and gives one chance to correct Part XIII problems on rent.

The CRA will not accept a late return under the policy if any of these is true:

• The CRA already told you about your Part XIII duties on rental income.
• The CRA already started action because you did not follow the Part XIII rules.
• You filed Form NR6 and the CRA approved it.

With an approved NR6, the policy page says the CRA may, in rare cases of extraordinary circumstances, allow more time to file that year's section 216 return under subsection 220(3); that is a request, not a right.

Without the policy, a section 216 return filed after its deadline is not a valid election, and the year stays taxed on gross rent (CRA: T4144). The policy page names no fixed number of years and no application form; it says to contact the Sudbury Tax Centre. Ask before filing how many years the CRA will take under the policy.

Which penalties and interest apply?

Interest applies to unpaid tax in every route. Penalties depend on who failed and which route fixes it.

The failure-to-withhold penalty is written for a person who had to withhold. Where you collected residential rent yourself and had to remit it, the Act frames your duty as remitting, not withholding, so which penalty could apply to you is less clear. The CRA says non-residents who do not remit tax on residential rent "can be assessed penalties and interest" (CRA: T4061). Interest on a long catch-up can be large because it compounds daily from each month's due date. Relief requests are covered in penalties, interest and relief.

Late-filing policy or Voluntary Disclosures Program: which fits?

The late-filing policy is narrower and removes penalties only. The Voluntary Disclosures Program (VDP) can also cut interest, but needs a full application. Both close or shrink once the CRA contacts you.

A VDP application is generally unprompted when the CRA has not contacted you about the issue (a general education letter does not count), and prompted when it follows a CRA letter naming the issue or after the CRA got third-party information about you.

The VDP rules are in IC00-1R7; relief reaches back ten calendar years. IC00-1R7 says the VDP covers withholding taxes but does not mention the section 216 policy, and neither page says how the two interact. With an approved NR6, the policy is closed, so the VDP or a relief request is what remains. The application in depth is in unreported income and voluntary disclosure.

In what order do I fix it?

Rebuild the years and choose the route first, then pay, report and file. The CRA publishes no single order; the route comes first because the late-filing policy and the VDP both depend on coming forward before the CRA contacts you:

1. Rebuild each year: gross rent, expenses, CCA and any tax already paid, per property. Each co-owner is taxed on their own share; see non-resident landlords.
2. Choose the route: late-filing policy (contact the Sudbury Tax Centre) or VDP (Form RC199), before filing anything piecemeal.
3. Get a non-resident tax account if you collected rent yourself, and pay the Part XIII tax, or have the agent remit it (CRA: T4061).
4. Fix the reporting: the agent files NR4 returns; an owner without an agent asks the CRA in writing for an NR4 pro forma.
5. File section 216 returns (Form T1159) for each year accepted, attaching the NR4 and a statement of rent and expenses (CRA: T4144). Part XIII tax paid is credited on each return and any excess is refunded; the policy page does not say whether all Part XIII tax must be paid before returns are accepted, so ask the Sudbury Tax Centre.
6. Set up the current year: with a Canadian agent, consider Form NR6 so withholding uses net rent; an NR6 then makes filing each section 216 return within six months after the year's end mandatory.

Confirm the order with the CRA office handling your case; steps 3 to 5 may be done together. Reading the NR4 itself is covered in the NR4 slip guide.

What records rebuild the missing years?

Rebuild from documents that a third party created, then fill gaps from your own records. The section 216 return needs a statement of rent and expenses for each year, and supporting records are kept for six years (CRA: T4144).

I plan to sell: should the rent years be fixed first?

A sale needs a section 116 notice to the CRA (Form T2062) for a clearance certificate, and a return for the sale year. The late-filing policy is not available once the CRA has told you about your Part XIII duties on rent or started action, so whether the rent years are dealt with before that point can decide which route is left.

If you claimed CCA on section 216 returns, a sale can bring recapture, which must be reported on a section 216 return due April 30 of the following year (CRA: T4144). The certificate and buyer's holdback are covered in non-residents selling Canadian property.

Example

Illustrative figures in Canadian dollars.

Three years, no agent, nothing paid

An owner abroad rents a condo directly to a family for C$2,000 a month, or C$24,000 a year, for three years. Part XIII tax is 25% of C$24,000, or C$6,000 a year:

• Year 1: C$6,000, plus interest from each month's due date.
• Year 2: C$6,000, plus interest.
• Year 3: C$6,000, plus interest. Total: C$18,000 plus interest.

For rent paid before August 12, 2024, the family was required to withhold and can also be assessed; the owner still owes the tax.

If the CRA has never contacted the owner and there was no NR6, the late-filing policy may accept section 216 returns. With C$14,000 a year of expenses and CCA, each return taxes C$10,000 of net rent instead of C$24,000 gross, with no penalties; interest may still apply. At the 14% lowest federal rate plus the 48% non-resident surtax, that is about C$2,070 a year (more in earlier years, when the lowest rate was higher), against C$6,000 under Part XIII.

A property manager never withheld

A Canadian property manager collected C$30,000 a year for two years and paid it all to the owner. The manager owed 25%, or C$7,500 a year, and can be assessed the tax plus a 10% penalty (20% for repeat failures in a year made knowingly or with gross negligence), while the owner is jointly liable for the interest. The manager may recover the tax from the owner. The owner may still file section 216 returns for net rent if each is within two years of the year's end, or, for older years, if the late-filing policy still applies; tax the manager pays on assessment is paid on the owner's behalf, so confirm with the CRA how it is credited on those returns.

An approved NR6, returns never filed

An owner's agent withheld on net rent under an approved NR6, but no section 216 returns were filed. Those elections are invalid, the years are taxed on gross rent, and the CRA can assess the agent for the shortfall. The late-filing policy is not available; more time under subsection 220(3) is possible only in extraordinary circumstances. If the CRA has not yet contacted the owner or the agent, the VDP may apply; a relief request is the other route.

Different for you?

• You need the normal-year rules, NR6 and section 216 going forward: see non-resident landlords.
• You also have other unfiled Canadian returns from abroad: see non-resident Canadian returns and catch-up.
• The CRA has already written to you, or you had an approved NR6: the late-filing policy is closed, and a VDP application or relief request needs care. See unreported income and voluntary disclosure and get individual tax help.
• Many years, a property manager dispute, or US returns already reporting the rent: the years, the route and the foreign credit need one plan. Bring the rent ledger, leases and agent statements to individual tax help. If you live in the US, see renting your Canadian home after moving to the US.
• You are selling, or the buyer already held back part of the price: see non-residents selling Canadian property and buyer held back your sale proceeds.
• The CRA still treats you as a resident: see CRA still thinks you are a resident.
• You want penalties or interest cancelled: see penalties, interest and relief.