Form NR6 and the section 216 return: I kept my Canadian rental after moving to the US

Rent on a Canadian property carries a flat 25% Canadian tax on the gross, taken before you see it. Form NR6 moves that 25% onto what’s left after expenses, but only once CRA approves the form in writing. A section 216 return then taxes the real net at ordinary Canadian rates and usually refunds the difference. The same rent goes on your US Schedule E, under different depreciation rules.

Why is 25% coming off my gross rent?

Part XIII, the withholding half of Canada’s Income Tax Act, taxes the payment itself. It charges 25% “on every amount that a person resident in Canada pays or credits” to a non-resident, and rent is on the list (ITA s.212(1)(d)). Whoever pays you must deduct it and “forthwith remit” it, “notwithstanding any agreement or law to the contrary” (s.215(1)).

Does the treaty lower the 25%?

No. Article VI lets Canada tax income from real property with no rate cap and no election out. Article XII’s 10% ceiling is a royalty rate whose definition stops at “tangible personal property” (treaty Article VI, Article XII). The full leaving-Canada checklist covers the departure side, including why the house was left out of your departure-tax math.

Who withholds, and who can be my Canadian agent?

Whoever pays it. If a property manager collects the rent, the duty is theirs (s.215(3)), and an agent who doesn’t is personally liable for the whole amount (s.215(6)). The tax is due by the 15th of the following month (CRA, rental income). For an NR6 your agent must be “a resident of Canada who acts on your behalf regarding your Canadian-source rental income,” so a manager, an accountant or a relative there qualifies.

What if I manage the place myself?

You’re the loose end. In law your tenant is the payer, so the duty is theirs. CRA doesn’t press it: renters “are not expected to know the residency of your landlord nor withhold 25%.” The tax is still owed. Whoever does withhold owes you two copies of the NR4 slip.

What does Form NR6 actually change?

Timing. It moves the 25% onto what’s left “after the rental expenses have been paid,” in CRA’s words. The tax is the same either way: file the section 216 return and the example below lands at C$3,108 with an NR6 or without one. You file an undertaking promising that return within six months of year end, and your agent then skips the s.215(3) remittance to “deduct 25% of the amount available” (s.216(4)).

When does the withholding drop?

Not when you file. CRA wants the form by January 1 of the year, or before the first rental payment is due. Until it approves in writing, “your agent must continue to withhold non-resident tax on the gross rental income” (CRA, section 216).

If rent is due before that, the gross withholding stands and you recover it on your return: everything remitted counts as paid on account, and the excess refunds to you (s.216(2)). Your agent’s own effective date is separate, running from the first of the month CRA received the form (CRA, rental withholding).

	No NR6 filed	NR6 approved by CRA	Section 216 return filed
What the 25% applies to	Gross rent, expenses ignored (s.212(1)(d))	The amount available after expenses (s.216(4)(a))	Nothing; actual net income at Canada’s ordinary graduated rates, the same brackets a resident pays (s.216(1))
Who sends the money	Tenant or agent, forthwith on paying the rent, remitted by the 15th of the next month (s.215(1), (3))	The same agent, on the smaller base	You, with the T1159 return
Deadline attached	None; the withholding is the end of it	Section 216 return within six months of year end (s.216(4))	Two years after year end where no undertaking was filed (s.216(1))
Slip you receive	NR4, Statement of Amounts Paid or Credited to Non-Residents of Canada; CRA’s copy due March 31 (Reg 202(7))	The same NR4, still reporting the gross rent for the whole year	n/a
In the example below	C$9,000 withheld, final only if you never file the section 216 return; otherwise refundable down to the same C$3,108	C$3,750 withheld, interim only, refundable down to the same C$3,108	Final Canadian tax about C$3,108 either way, so NR6 changes the cash Canada holds meanwhile and leaves the tax alone
If you do nothing	The C$9,000 becomes your final Canadian tax	The agent pays the full gross amount they’d otherwise have remitted (s.216(4)(b))	n/a

What is a section 216 return, and what if I skip it?

It’s elective, and the window depends on the NR6: two years after year end, or six months where CRA approved an undertaking. The form is T1159. File it and you’re taxed as a Canadian resident on the rental income alone, with no deductions in computing taxable income and no personal credits (s.216(1)). Skip it and the 25% is your final Canadian tax.

A rental that rises to a business run through a permanent establishment in Canada leaves Part XIII for Part I, so section 216 never arises (Reg 805; ITA s.2(3)).

Why the 48% surtax?

Reg 2602 allocates none of this income to a province (s.120(4); Reg 2602), no provincial return rides on top. In its place s.120(1) adds a federal surtax of 48% of the tax otherwise payable (s.120(1)).

What if I’m years behind and nothing was withheld?

Interest runs daily on tax that should have been withheld, and CRA may add a penalty. The section 216 window runs two years from each year end, so recent ones can still go in. And CRA’s Voluntary Disclosures Program “grants relief on a case-by-case basis” (CRA, VDP), never automatically.

Should I claim depreciation (CCA) in Canada?

Depends whether you’re holding or selling. CCA can’t exceed your rental income before CCA, so it never creates a loss (Reg 1100(11)), and on sale it comes back as recapture into income (s.13(1)). CRA wants a section 216 return for a sale year with recaptured CCA (CRA, section 216), plus a Part I return for the disposition (s.216(5)). It’s a deferral: worth claiming while you’re holding for years, rarely if you’re selling soon, and selling is its own clearance-certificate problem. The example below claims none, so its C$15,000 is the full net.

How is the same rental taxed on my US return?

Fully, as part of worldwide income. Citizens and resident aliens are taxed on income “received from sources within or without the United States” (Treas. Reg. 1.1-1(b)), and the rent goes on Schedule E in US dollars, converted item by item (Pub 527; IRS, currency rates).

Depreciation is where the systems split. The deduction is allowed on income-producing property (IRC 167(a)), and skipping it saves nothing: you “must still reduce your basis … by the full amount of depreciation that you could have deducted” (Pub 527).

Which depreciation period applies to a Canadian rental?

Thirty years. The 27.5 everybody arrives with is the general-system period (IRC 168(c)); property “used predominantly outside the United States” runs on the alternative system instead (IRC 168(g)(1)(A)), where it gets 30 years, or 40 if it went into service before January 1, 2018, and no bonus depreciation either (IRC 168(g)(2)(C); IRS Pub 946).

What if I run it short-term?

Check the definition before assuming 30. Residential rental property needs 80% or more of a building’s gross rents from dwelling units, and a unit in an establishment more than half of whose units are used on a transient basis isn’t one (IRC 168(e)(2)). Fail that and it’s nonresidential real property, at 40 years.

Point of comparison	Canada (section 216 return)	United States (Schedule E)
What’s taxed	25% of gross rent unless you elect; net income if you file (s.216(1))	Net rental income, every year
Currency	Canadian dollars	US dollars at the rate for each item’s date
Depreciation	CCA is optional, capped at rental income before CCA (Reg 1100(11)), recaptured into income on sale (s.13(1))	Effectively mandatory: basis falls by the allowable amount either way (IRC 1016(a)(2))
Recovery period	No single period; CCA runs by class (Reg 1100(1)(a))	30 years straight line under ADS, or 40 where the property fails the residential-rental definition (IRC 168(g)(2)(C), 168(e)(2))
Key forms	NR6, NR4, T1159 (the section 216 return)	Schedule E, Form 4562, Form 1116 (rents sit in the passive basket, see the instructions), Form 8960

Do I get a US credit for the Canadian tax?

A credit, yes, and it stops short in two places. You can credit the Canadian tax against your US tax (IRC 901), and the treaty obliges it (Article XXIV(1)). But it can’t exceed your US tax on the foreign-source share of your income (IRC 904(a)), and what qualifies “is not necessarily the amount of tax withheld” (Pub 514). Form 1116 rides on your assessed section 216 liability.

Excess carries back a year and forward ten (IRC 904(c)). ADS keeps US taxable rental income near zero, so the s.904(a) limit does too, and on the example’s numbers the carryforward mostly expires unused.

What about the 3.8% NIIT?

Rents outside a trade or business are net investment income, and the 3.8% tax bites once modified AGI clears $250,000 jointly or $200,000 single (IRC 1411; IRS, NIIT). Under the regulations no foreign tax credit offsets it (Treas. Reg. 1.1411-1(e)), though a treaty-based credit against the NIIT is being litigated in this exact corridor (Bruyea v. United States, on appeal) and may apply on your facts.

What should I do next if the 25% is already coming off?

Nothing is lost yet. The section 216 return gets the over-withholding back, and the window stays open two years after each year end, so this year and last are live. Get the NR6 in before January 1 so next year runs on the net.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.