Common Non-Resident Tax Mistakes Made in Canada
The tax mistakes we see most often among non-residents with Canadian income: getting residency status wrong, ignoring Section 216 and 217 elections, mishandling withholding tax on rent and services, missing the non-resident director and GST/HST traps, and filing the wrong return. Written by a licensed Canadian CPA who works with non-resident owners, landlords and corporations.
The most common non-resident tax mistakes in Canada are misjudging residency status, ignoring the withholding tax on Canadian rent, missing the Section 216 and 217 elections that lower the tax, overlooking GST/HST and director obligations, and filing the wrong return altogether. Each one either overpays tax that could have been reduced or creates a CRA problem that grows over time. Non-resident rules are treaty-driven and specific, so a general approach almost always gets them wrong.
Why Non-Residents Get Canadian Tax Wrong
Non-resident taxation sits at the intersection of the Income Tax Act, the relevant tax treaty and the withholding rules, and very few general preparers handle it regularly. The result is a non-resident who overpays through flat withholding, misses an election that would have cut the tax, or files as if they were a resident when they are not.
The mistakes below are the ones we correct most often when a non-resident owner or landlord moves their file to us. Fixing them is part of how we handle full-service non-resident tax returns filing.
Mistake 1: Getting Residency Status Wrong
Everything flows from residency, and it is the first thing people get wrong. Residency for tax is not about citizenship or a visa; it is about residential ties to Canada. Someone who has left Canada but kept a home, a spouse or dependants here may still be a resident for tax, while someone who assumes they are still a resident may in fact have become a non-resident with very different obligations.
Getting this wrong changes which return you file, what income Canada can tax, and how much withholding applies. The status has to be determined on the facts, not assumed, which is exactly why we assess it directly for a non-resident corporation in Canada.
Mistake 2: Mishandling Withholding Tax on Canadian Rent
A non-resident who earns rent from Canadian property is subject to a flat 25 percent withholding tax on the gross rent. The mistake is either not withholding and remitting at all, which creates a liability, or accepting the flat 25 percent on gross rent when a Section 216 election would tax the net rental income at regular rates instead, usually far less.
The flat 25 percent is on gross rent, not profit: Without a Section 216 election, the tax ignores your mortgage interest, property tax, repairs and other costs. Electing under Section 216 lets you be taxed on the net income, which is almost always the better result for a landlord with real expenses.
Getting the withholding and the election right together is the core of our work on non-resident rental income tax returns under Section 216.
Mistake 3: Missing the Section 216 and 217 Elections
These two elections are the most valuable and most missed tools for non-residents. Section 216 applies to Canadian rental income and lets you file a return on the net income rather than suffer 25 percent on the gross. Section 217 applies to certain Canadian-source income such as pensions and lets you elect to be taxed as if resident, which can lower the tax where your income is modest.
| Election | What It Does |
|---|---|
| Section 216 | Taxes Canadian rental income on net rather than 25 percent of gross |
| Section 217 | Lets certain Canadian-source income be taxed as if resident, often lower |
| Missing both | Flat 25 percent withholding applies with no relief |
| Filing deadline | Elections are time-sensitive and lost if filed late |
The mistake is not knowing the elections exist, or missing the deadline to make them. Both are time-sensitive, and once the window closes the flat withholding stands.
Mistake 4: Overlooking GST/HST and Director Obligations
Non-residents who own or run a Canadian corporation often miss two separate traps. A non-resident carrying on business in Canada can have GST/HST registration obligations, and a non-resident director of a Canadian corporation carries personal responsibilities and potential liability that many do not realise they have taken on.
These obligations do not disappear because the person lives abroad. They attach to the activity and the role, and they need to be handled deliberately, which is the same discipline we apply for non-resident owners and directors.
Mistake 5: Filing the Wrong Return
A non-resident does not file the same return as a resident. Filing a resident return when you are a non-resident, or the reverse, misreports your income, applies the wrong rates, and can trigger CRA review. The correct return depends entirely on your status and the type of Canadian income you earn.
The Mistakes at a Glance
- Getting residency status wrong. Status is about residential ties, not citizenship. It decides everything else, so it must be determined on the facts.
- Mishandling rent withholding. Either failing to withhold and remit, or accepting 25 percent on gross when an election would tax the net.
- Missing Section 216 and 217. The two elections that lower non-resident tax, both time-sensitive and lost if filed late.
- Overlooking GST/HST and director duties. Registration and director obligations attach to the activity and role, not the person's location.
- Filing the wrong return. A non-resident files differently from a resident; the wrong return misreports income and invites review.
Where it goes wrong in one line: Non-residents lose the most tax by misreading their residency status, accepting flat 25 percent withholding on gross rent, missing the Section 216 and 217 elections, ignoring GST/HST and director obligations, and filing the wrong return.
Case Study: Non-Resident Landlord, Ontario Property
A non-resident owning a rental property in Ontario had been suffering 25 percent withholding on gross rent for years, with no election in place and no account for the deductible costs. We reviewed the position, put the Section 216 filings in place, and had the tax recalculated on the net rental income after mortgage interest, property tax and repairs.
Case Study: Non-Resident Owner of a Canadian Corporation
A non-resident who owned and directed a Canadian corporation had never confirmed their residency status, had unaddressed GST/HST exposure, and did not realise the personal responsibilities attached to being a director. We determined the status on the facts, addressed the registration position, and set the structure up correctly so the obligations were handled rather than left to grow.
Worried One of These Mistakes Applies to You?
We confirm your residency status, handle the withholding and elections, and address your GST/HST and director obligations. AFFORDABLE flat fees. All fees include HST.
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Non-Resident Tax, Withholding and Elections. Done Right.
We fix the mistakes that cost non-residents money: wrong residency status, flat withholding on gross rent, missed Section 216 and 217 elections, overlooked GST/HST and director duties, and the wrong return. AFFORDABLE flat fees. All fees include HST.