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CPA Answers · Knowledge Base · Canada 2026

What Happens If I Don't File a Section 216 Return?

If you are a non-resident earning Canadian rental income and skip the Section 216 return, the CRA can tax 25% of your gross rent with no expense deductions, leaving you with a far larger bill than you owed. Here is exactly what happens, and how to fix it.

Quick Answer

If you do not file a Section 216 return, the CRA treats the 25% withholding tax on your gross rent as the final tax, with no deductions for your rental expenses. You lose the right to be taxed on net profit, and missing the deadline can make that loss permanent.

What a Section 216 Return Actually Does

Section 216 of the Income Tax Act lets a non-resident who owns Canadian rental property choose to be taxed on the net rental profit at regular graduated rates, instead of the flat 25% withholding tax on gross rent. For almost every property owner, that election produces a much lower tax bill, because rent after mortgage interest, property tax, insurance, repairs and other costs is far smaller than the gross rent. We handle non-resident rental income returns under Section 216 for owners living abroad.

Without a Section 216 ReturnWith a Section 216 Return
Taxed on gross rentTaxed on net rental profit
Flat 25% withholding is the final taxRegular graduated tax rates apply
No deduction for mortgage interest, property tax, repairsAll eligible rental expenses deducted
No refund of over-withheld taxRefund of excess withholding is possible
Often a much higher effective taxUsually a far lower, fairer tax

What Happens If You Don't File It

Not filing does not make the tax go away. The CRA simply keeps the 25% it withheld on gross rent and treats that as your final liability. The damage falls into a few clear buckets.

ConsequenceWhat It Means for You
Tax on gross, not netThe 25% withholding applies to the full rent, with none of your expenses deducted. On a property that barely breaks even, you can owe tax on money you never kept.
You lose the refundIf your agent or tenant remitted the 25% all year, a Section 216 return is how you claim back the overpayment. No return, no refund.
The election can expireThe Section 216 return has its own filing deadline. Miss it and the right to be taxed on net income for that year can be lost permanently.
Withholding liability for non-remittanceIf the 25% was never withheld and remitted at all, the CRA can pursue the unremitted tax plus penalties and interest, often from the agent and the owner.
Problems on saleUnfiled rental years and an unclear compliance history complicate the clearance certificate process when you eventually sell the property.

The deadline is the trap. A Section 216 return generally must be filed within two years of the end of the year the rent relates to, and that window is shorter when no NR6 was in place. Once it closes, the CRA is not obliged to let you switch from gross-basis tax to net-basis tax for that year. The longer you wait, the more likely the 25%-on-gross outcome becomes permanent.

The 25% on Gross vs Net: Why It Hurts So Much

The reason missing this return is so costly is the gap between gross rent and net profit. Consider an illustrative non-resident landlord renting a property for $30,000 a year with $26,000 of mortgage interest, property tax, insurance and repairs.

BasisCalculationTax Owing
No Section 216 (gross)25% × $30,000 gross rent$7,500
With Section 216 (net)Graduated rate × $4,000 net profitA few hundred dollars

The numbers are illustrative, but the pattern is real: the gross-basis tax can exceed the entire net profit of the property. Filing the Section 216 return is what turns a punitive bill into a fair one, and is often the difference between the rental being viable or a loss.

The NR6 changes the cash flow. If you file an NR6 before the year starts and it is approved, your agent can withhold 25% on the estimated net rent each month instead of the gross, so far less is held back during the year. The NR6 then commits you to filing the Section 216 return. We handle the NR4, NR6 and withholding compliance alongside the return. Know Your Exact Fee →

How to Fix Unfiled Section 216 Years

If you are behind, the situation is usually fixable, but it is time-sensitive. The right path depends on how far back the unfiled years go and whether the withholding was remitted.

Your SituationThe Likely Fix
Within the filing window, tax was withheldFile the Section 216 return now to claim net-basis tax and recover any over-withholding.
Past the windowA late or voluntary filing may still be accepted in some cases; relief is not guaranteed and depends on the facts.
Withholding never remittedThe unremitted 25% plus penalties and interest needs to be addressed, often through a voluntary disclosure.
Multiple unfiled yearsReturns are prepared and filed in sequence, and a relief or disclosure request may reduce penalties.

Don't wait for the CRA to find you. Coming forward before the CRA contacts you generally gives you more options, including relief from penalties, than waiting until you are reassessed. If you own Canadian rental property from abroad and have not filed, the sooner it is reviewed the more of the net-basis benefit can usually be preserved. We advise non-residents through non-resident tax returns and the cleanup process.

Case Study: A Landlord Abroad Taxed on Rent He Never Kept

A non-resident owner had a tenant remitting 25% of the gross rent to the CRA every month for two years, while the property barely broke even after mortgage interest and property tax. He assumed the withholding settled everything and filed nothing. When he came to us, both years were still inside the Section 216 window. We filed the elections and returns on a net basis, deducted the full expenses, and recovered the large majority of the tax that had been withheld on gross rent. Had he waited another year, the earliest year would have closed and that refund would have been lost. The figures are illustrative of the kind of outcome we see, not a specific client file.

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Frequently Asked Questions

What is a Section 216 return?
It is an elective Canadian tax return that lets a non-resident who earns Canadian rental income choose to be taxed on net rental profit at regular rates, instead of the flat 25% withholding tax on gross rent. For most landlords it produces a much lower tax bill. Section 216 Returns →
What happens if I don't file a Section 216 return?
The 25% withholding tax on your gross rent becomes your final tax, with no deduction for mortgage interest, property tax or repairs. You lose the chance to be taxed on net profit and to recover over-withheld tax, and if the deadline passes that loss can be permanent.
Is filing a Section 216 return mandatory?
It is an election, so it is technically optional, but skipping it is almost always costly. If you signed an NR6 undertaking, however, filing the Section 216 return becomes a requirement, not a choice.
How much is the non-resident withholding tax on rent?
The default is 25% of the gross rent, withheld and remitted by your tenant or Canadian agent. Without a Section 216 return, that 25% on gross is the end of the story, even if your property made little or no profit.
What is the deadline to file a Section 216 return?
It generally must be filed within two years of the end of the year the income relates to. That window is shorter where an NR6 was filed, in which case the return is due by June 30 of the following year. Missing the deadline can forfeit the net-basis election for that year.
Can I still file a Section 216 return late?
Sometimes. If you are still within the filing window you can file now. Past the window, a late filing may be accepted in some circumstances, but it is not guaranteed and depends on the facts, so it should be reviewed quickly.
Will I get a refund if I file?
Often yes. If 25% of your gross rent was withheld all year and your net profit is small, the net-basis tax is usually far lower, so filing the Section 216 return can recover a large part of what was withheld.
What expenses can I deduct on a Section 216 return?
Ordinary rental expenses, including mortgage interest, property tax, insurance, repairs and maintenance, property management fees, and certain other costs of earning the rent. These deductions are exactly what the 25%-on-gross approach denies you.
What is an NR6 and how does it relate?
An NR6 is an application, filed before the year begins, that lets your agent withhold 25% on the estimated net rent rather than the gross, easing your monthly cash flow. Approval of an NR6 commits you to filing the Section 216 return for that year. NR4 / NR6 Compliance →
What is the NR4 slip?
The NR4 reports the gross rent paid to the non-resident and the tax withheld during the year. Your agent files it, and the figures support your Section 216 return when you claim the net-basis tax and any refund.
What happens if the 25% was never withheld at all?
That is more serious than simply not filing the return. The unremitted tax, plus penalties and interest, can be pursued, often from both the agent and the owner. A voluntary disclosure is frequently the right route to fix it.
Who is responsible for withholding the tax?
The tenant or the non-resident's Canadian agent is responsible for withholding the 25% and remitting it to the CRA. If they fail to, the CRA can hold them liable, which is why proper NR4/NR6 setup protects everyone.
I have several unfiled years. What do I do?
The returns are prepared and filed in sequence, with the years still inside the window prioritised since those refunds are at risk first. Where years are past the window or withholding was missed, a relief or voluntary disclosure request is usually part of the fix.
Does not filing affect selling the property?
Yes. When a non-resident sells Canadian property, a clearance certificate process applies, and unfiled rental years or an unclear compliance history complicate it. Getting the Section 216 filings current first makes the eventual sale far smoother.
Do I file a Section 216 return if my rental lost money?
Usually yes, and it is to your advantage. Filing on the net basis can show little or no tax owing and recover withholding that was taken on the gross rent, whereas not filing leaves the 25%-on-gross in the CRA's hands.
Can I deduct CCA (depreciation) on a Section 216 return?
Capital cost allowance can be claimed, but with care, because it cannot create or increase a rental loss and has consequences when you sell. Whether to claim it is a planning decision we work through with you.
Is the 25% rate ever reduced by a tax treaty?
The 25% withholding on rent generally is not reduced by treaty the way some other income is. The route to a lower effective tax on rent is the Section 216 election to be taxed on net income, not a treaty rate.
What if I became a non-resident partway through the year?
The rental income earned while you were a non-resident falls under the non-resident rules, while the resident period is reported differently. The split needs to be handled correctly, and a departure return is often involved.
I'm a Canadian citizen living abroad. Do these rules apply to me?
Yes. The rules turn on tax residency, not citizenship. A Canadian citizen who is a non-resident for tax purposes and earns Canadian rent is subject to the 25% withholding and the Section 216 election just like any other non-resident.
Do I need a Canadian agent?
A Canadian resident agent is generally required to manage the withholding and remittance and to file the NR4 and NR6. Many non-resident owners use their property manager or accountant in this role.
What records do I need to file a Section 216 return?
Your lease and rent records, the NR4 showing rent and tax withheld, and full documentation of expenses, mortgage interest, property tax, insurance, repairs and management fees. Clean records are what unlock the deductions.
Will I face penalties for not filing?
Where tax was withheld and remitted, the main cost of not filing is usually the lost net-basis benefit and refund. Where withholding was missed entirely, penalties and interest on the unremitted amount can apply. Coming forward voluntarily generally reduces the penalty exposure.
How long does it take to get my refund?
Once the Section 216 return is filed and assessed, any refund of over-withheld tax follows the CRA's normal processing, which can take longer for non-resident returns. Filing promptly and accurately is what keeps it moving.
Does each owner file separately for a co-owned property?
Generally each non-resident co-owner reports their share of the rental income and expenses and files their own Section 216 return. The split follows ownership, and we set it up so each return is consistent.
Can I fix prior years through the Voluntary Disclosures Program?
In many non-compliance cases, particularly where withholding was missed, a voluntary disclosure is the appropriate route and can reduce penalties and interest if you qualify and come forward before the CRA contacts you.
Is Section 216 the same as a regular Canadian tax return?
No. It is a separate, elective return specifically for non-resident rental income, with its own rules and deadline. It is not the same as a resident T1 or the non-resident return used for other Canadian-source income.
Do you handle Section 216 returns for owners outside Canada?
Yes. We prepare Section 216 returns, NR4 and NR6 filings, and the cleanup of unfiled years entirely remotely for non-resident owners around the world, at flat fees. Non-Resident Tax Returns →
How much do you charge to file a Section 216 return?
We quote an AFFORDABLE flat fee up front based on the property and the number of years involved, confirmed before we start. All fees include HST, and there is no hourly billing. Know Your Exact Fee →
How do I pay your fees?
Payment is by Interac e-Transfer to info@gondaliyacpa.ca. Auto-deposit is enabled, so no security question is needed.
How do I get started?
Book a free consultation. We review your property, your withholding history and any unfiled years, confirm the deadline position, and file the Section 216 returns to put you on the net basis and recover what we can. Book Free Consultation →

Behind on Your Section 216 Returns?

We file non-resident rental returns on the net basis, handle NR4 and NR6 compliance, and clean up unfiled years to recover the tax withheld on your gross rent. AFFORDABLE flat fees. All fees include HST.

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