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Generous late filing policy for rental income of non-residents

August 6, 2021

Authored by RSM Canada LLP

Cleo L. Melanson, CPA, CA, CMA shared this article


Authored by RSM Canada

This content originally published on Canadian Tax Foundations newsletter: Canadian Tax Focus. Republished with permission.

The CRA has a generous but unpublicized policy regarding when it will allow late-filing of subsection 216(1) returns. The stated purpose of the policy is to give non-residents “one chance to come forward and correct withholding and filing deficiencies under Part XIII,” but much more than one chance seems to be allowed in practice.

Subsection 216(1) allows a non-resident to file an income tax return (T 1159) and pay part I tax on the net rental income (paid or credited) from real or immovable property in Canada. Otherwise, the non-resident’s tax liability is for 25 percent of the gross rental income (part XIII tax). A companion rule deals with withholding: provided that the non-resident files an NR 6 form on or before January 1 of each year the property is rented, or before the first rent payment is due for the year, the taxpayer can withhold tax due on the net rental income.

Unfortunately, many people fail to file the subsection 216(1) return before the deadline—namely, within two years after the end of the taxation year. According to the ITA, this causes them to be liable for the part XIII amount instead. The CRA’s stated policy is that late-filing (with payment on tax on net income, not gross income) is allowed, except where:

  • the CRA has already advised the non-resident of its responsibilities under part XIII for rental income or timber royalties earned in Canada
  • the CRA has already initiated action because the non-resident failed to comply with part XII
  • the non-resident previously submitted an NR 6 form and the CRA approved it

It appears that each of these exclusions may apply only to the particular years in which those circumstances applied, and not to other years in which the taxpayer is non-compliant. This is the broadening of the “one chance” policy.

For example, John is a resident of Australia who owns a residential property in Canada from which he earns rent. He has owned this property since 2015. He filed an NR 6 undertaking for the 2015 taxation year and the CRA approved it. However, John failed to file the subsection 216(1) return—not just for 2015, but also for 2016 to 2020.

Verbal discussions with several CRA part XIII tax officers suggest that the late-filing policy may be applied as follows:

  • For the 2015 taxation year, the last of the three exclusions listed above applies, and so the tax liability would be based on gross rental income.
  • For the 2016 to 2020 taxation years, late-filed subsection 216(1) returns may be accepted, and the tax liability may be based on net rental income.

We were unable to find any discussion of this policy in publicly available CRA documents, including the CRA’s Income Tax Audit Manual. It will therefore be difficult to rely on this policy, should a particular auditor not apply this interpretation.

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This article was written by Nakul Kohli, Jiani Qian and originally appeared on 2021-08-06 RSM Canada, and is available online at

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