Renting Out Your Canadian Home After Moving to the US: the 25% Withholding, the NR6 Fix, and the Section 216 Return

Short version: Form NR6 Explained: Net Withholding on Canadian Rent

A Canadian rental owned by a US resident answers to two systems that share the income and almost nothing else. Canada's default is blunt: the tenant or agent must withhold 25% of gross rent and remit it monthly, as a final Part XIII tax unless the landlord opts into the net system. The opt-in has two parts: Form NR6, filed before the year (or before the first rent payment) with a Canadian agent's undertaking, lets withholding run at 25% of projected net income — often near zero for a leveraged property — and commits the landlord to file the section 216 return by June 30 of the following year (the accelerated NR6 deadline; without an approved NR6 the section 216 return is instead due within two years of the end of the year), computing actual net rental income at ordinary rates and settling the difference. Miss the June 30 deadline after an NR6 and the CRA can revert to gross-basis tax; skip withholding entirely and the agent or tenant carries liability with penalties and interest. The US side taxes the same rental on Schedule E under its own rules — depreciation is effectively mandatory (recapture applies whether or not claimed), expense categories differ, and the Canadian tax actually paid becomes a foreign tax credit. The two returns share receipts but not logic, so the bookkeeping is genuinely dual from the first month. And every year the property is a rental, the exit gets more involved: change-of-use rules at the start, capital cost allowance decisions along the way (claiming CCA trades current Canadian tax for recapture later), and the section 116 clearance process waiting at the eventual sale.

Key takeaways

• Default: 25% of gross rent withheld and remitted monthly by the payer or agent — a final tax if you do nothing more. On a C$3,000 rent, that is C$750 a month regardless of the mortgage, taxes, and repairs.
• NR6 + section 216: file NR6 (landlord plus a Canadian agent who signs the undertaking) to withhold on projected net; file the section 216 return by June 30 of the following year to compute actual tax at graduated rates on net income. Most leveraged rentals owe little Canadian tax on the 216 — the election converts a 25% gross toll into a real net computation.
• The agent is load-bearing: a Canadian-resident agent (property manager, family member who understands the role) remits monthly, files NR4 slips, and carries liability if withholding fails. Landlord-managed-from-Texas with no agent is the standard penalty fact pattern.
• US side: Schedule E with USD conversion, US depreciation over the residential schedule (and recapture at sale), passive-loss rules, and a foreign tax credit for the Canadian 216 tax — the credit works, but only as well as the two returns are coordinated.
• Change of use at the start: converting your principal residence to a rental triggers a deemed disposition at fair market value — usually tax-free under the principal residence exemption — resetting cost for the rental era; an election can defer the change-of-use disposition and extend residence-exemption coverage for up to four years, at the price of claiming no CCA. The election is a real decision, made once, at the start.
• CCA is optional in Canada and strategic: claiming it shelters current rent but builds recapture for the sale; many non-resident landlords with modest 216 income skip it to keep the exit clean.

The first ninety days as a non-resident landlord

Appoint the agent and open the remittance account with the CRA; file NR6 before the first rent; make the change-of-use election decision with the departure-year return; set up the dual books (CAD ledger for the 216, USD ledger for Schedule E); and calendar the two filings — NR4 slips by the end of March, the 216 return by June 30. The system runs quietly once assembled; every horror story starts with a year of unremitted withholding discovered by a CRA letter to the tenant.

Worked example

An Oakville couple moves to Raleigh, keeping their townhouse: rent C$3,400, mortgage interest, tax, condo fees, and management totalling C$2,900. Default path: C$850 withheld monthly — C$10,200 a year against true net income of C$6,000. Their setup instead: property manager signs as agent; NR6 filed projecting C$6,000 net (withholding roughly C$125 a month); section 216 filed each June reporting actual net — Canadian tax around C$1,000 at graduated rates; NR4 slips issued. US side: Schedule E reports the same rental in USD, depreciation on the building's value at conversion runs about US$8,000 a year (producing a small US loss under passive rules), and the C$1,000 Canadian tax credits when US tax on the rental exists. They decline CCA in Canada and take the change-of-use deferral election, keeping principal-residence coverage running while they decide if Raleigh is permanent. Five years later they sell: the section 116 process applies, the exemption covers the pre-conversion years plus the election window, US recapture applies to the depreciation taken — and the file that makes it all computable is the dual ledger they started in month one.

Official sources

The CRA explains that a non-resident who receives rental income from real property in Canada is subject to a 25% tax on the gross rental income, that the payer or agent must withhold and remit it, and that the non-resident may elect under section 216 to file a return and pay tax on the net rental income instead, including the option to file Form NR6 to have withholding applied to the net amount. — Canada Revenue Agency, Rental income and non-resident tax (Section 216), https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/electing-under-section-216.html

The CRA explains that Canadian payers must withhold Part XIII tax at 25% on certain amounts paid or credited to non-residents of Canada — including pensions, RRSP and RRIF payments, and dividends — and that tax treaties may reduce the rate; the Part XIII tax withheld is generally the non-resident's final Canadian tax obligation on that income. — Canada Revenue Agency, Part XIII tax on income from Canada paid to non-residents, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/payments-non-residents/nr4-part-xiii-tax/part-xiii-withholding-tax.html

Practitioner note

Non-resident landlording is a system, not a form: agent, NR6, monthly remittance, NR4, the June 216 return, and a US ledger running beside it all. Clients who assemble it in the first quarter run it in an hour a month; clients who discover it in year two owe withholding they never collected. Our intake for every keep-the-house client ends with the same two appointments — the agent, and the change-of-use election decision that only exists once.

See also: Browse every cross-border tax topic guide, organized by situation · Short version: Rental Income Across the Border: The Gross Withholding Trap on Both Sides and the Election That Fixes It.

Next step

Fairlight prepares the non-resident landlord setup — agent and remittance structure, NR6 and section 216 filings, the change-of-use election, CCA strategy, and the coordinated US Schedule E. See cross-border pricing or book a call.