Canada's tax system applies to both residents and non-residents, but in fundamentally different ways. Canadian residents pay tax on worldwide income. Non-residents pay Canadian tax only on income from Canadian sources. This income is typically subject to withholding tax under Part XIII of the Income Tax Act, collected at the source before any payment leaves Canada.
Who Is a Canadian Non-Resident for Tax Purposes?
You are a non-resident of Canada for tax purposes if:
- You normally, customarily, or routinely live outside Canada
- You do not have significant residential ties to Canada (home, spouse/dependants in Canada, personal property)
- You have been outside Canada for more than two years AND have cut your residential ties
See our related guide on deemed residency rules and departure tax when leaving Canada.
Part XIII Withholding Tax — The Basics
Part XIII withholding tax applies to payments made from Canada to non-residents. The payer in Canada must withhold and remit the tax to CRA. The non-resident never receives the gross amount — the tax is deducted before payment.
| Type of Income | Standard Rate | Treaty Rate (US, UK, most OECD) |
|---|---|---|
| Dividends from Canadian corporations | 25% | 15% (or 5% if 10%+ shareholding) |
| Interest (arm's-length) | 0% (exempt) | 0% |
| Interest (non-arm's-length) | 25% | 10–15% |
| Rental income | 25% of gross rent | Same (Section 216 election may reduce) |
| RRSP/RRIF withdrawals | 25% | 15–25% depending on treaty |
| OAS, CPP, pension | 25% | 15% (some treaties allow lower) |
| Management fees | 25% | 0% (treaty exempt in many cases) |
| Royalties | 25% | 0–10% |
The NR4 Slip
When a Canadian payer makes a payment to a non-resident that is subject to Part XIII withholding, they issue an NR4 slip. This slip shows:
- The type of income paid (income code)
- The gross amount paid
- The withholding tax deducted
Non-residents receiving NR4 slips may be able to apply for a reduction in withholding or claim a refund by filing an NR7-R form if excess tax was withheld.
Section 216 Election — Rental Income
Non-residents with Canadian rental income are normally subject to 25% withholding on gross rents. This is often more tax than they would owe on net rental income. The Section 216 election allows you to file a Canadian income tax return and pay tax on net rental income instead.
To use Section 216:
- File CRA Form NR6 to request a reduction in withholding to 25% of net rental income
- File a special Section 216 return by June 30 of the following year
- You will pay regular graduated Canadian tax rates on net rental income
- If the net tax is less than the 25% of gross that was withheld, you receive a refund
Section 217 Election — Pension and Other Periodic Income
Non-residents receiving certain types of Canadian income (RRSP withdrawals, CPP, OAS, pension, and certain other amounts) can elect under Section 217 to have this income taxed under Part I (regular Canadian income tax) instead of Part XIII withholding. This can significantly reduce the tax payable if the non-resident's total Canadian income is modest.
A Section 217 return is beneficial when the graduated regular income tax rates applied to the income produce a lower tax than the Part XIII flat withholding rate. A cross-border tax advisor can calculate whether this election makes sense for your situation.
Part I Tax — Business and Employment Income
Non-residents with Canadian employment income or business income are subject to Part I tax (the regular income tax system), not Part XIII withholding. They must file a T1 General return. Employment income has tax withheld by the employer similar to Canadian residents. Business income is reported on a T1 with net income calculation.
Selling Canadian Real Estate as a Non-Resident
Non-residents selling Canadian real estate must:
- File CRA Form T2062 (clearance certificate request) before or immediately after closing
- The buyer must withhold 25% of the gross sales price until CRA issues a clearance certificate
- Non-residents pay Part I tax on the capital gain (50% of the gain is included in income)
- After filing the annual T1 return, excess withholding is refunded
Treaty-Based Withholding Rate Reductions
Canada has tax treaties with over 90 countries. To claim a reduced withholding rate under a treaty, the non-resident must:
- Be a resident of the other treaty country
- Complete the appropriate treaty declaration form for the Canadian payer
- For RRSP/pension, the treaty reduced rate applies automatically once CRA is notified