Electing Under Section 216: Tax Savings Guide

Electing under Section 216 of the Income Tax Act allows non-residents earning Canadian rental income to pay tax on their net rental profit rather than on their gross rental receipts. Without this election, CRA withholds 25% of every rent payment collected and remits it directly, regardless of your actual expenses. For a non-resident landlord with significant mortgage interest, property tax, and maintenance costs, the difference between paying tax on gross income versus net income can amount to thousands of dollars every year.

This guide explains how the Section 216 election works, who qualifies, what the filing deadline is, and how to use it to reduce your Canadian tax bill legally.

What Is a Section 216 Election?

A Section 216 election is a filing choice available to non-residents of Canada who receive rental income from Canadian real estate. Under Part XIII of the Income Tax Act, CRA automatically withholds 25% of gross rental payments from non-residents unless a treaty reduces that rate. The problem with gross withholding is that it ignores expenses entirely. A landlord who collects $3,000 per month in rent but pays $1,800 in mortgage interest, property tax, and maintenance costs still faces a $750 withholding every month on the full $3,000, even though the actual profit is only $1,200.

The Section 216 election lets the non-resident file a Canadian income tax return reporting rental income and all eligible expenses, paying tax only on the net amount. CRA then compares the tax on net income against the withholding already remitted and issues a refund for the difference. For most non-resident landlords with real property expenses, the refund is substantial.

How the Section 216 Election Works?

The election is made by filing a special Canadian income tax return, separate from a regular T1, that reports only the rental income and expenses from Canadian property. This return is due by June 30 of the year following the rental year. A return for rental income earned in 2025 must be filed by June 30, 2026. Missing this deadline eliminates the ability to make the election for that year entirely, which means the 25% gross withholding becomes the final tax with no adjustment available.

The return is filed with the CRA International Tax Services Office in Ottawa. This is a common point of confusion because non-residents send their returns to a different CRA office than Canadian residents use. Our blog on NR73 Determination of Residency Status explains how CRA establishes your non-resident status before these specialized filings apply to your situation.

Deductible expenses on a Section 216 return include mortgage interest, property taxes, insurance premiums, repairs and maintenance, property management fees, advertising costs, and accounting fees directly related to the rental property. Capital expenses go through Capital Cost Allowance rather than as direct deductions, following the same rules that apply to Canadian resident landlords reporting rental income on Schedule T776.

The NR6 Form: Reducing Withholding Before You File

Filing the Section 216 election at year end recovers excess withholding but it does not solve the cash flow problem during the year. A non-resident landlord who pays 25% withholding on gross rent every month waits until the following June to recover the overpayment. The CRA NR6 Form solves this problem by allowing the landlord to apply for reduced withholding in advance.

The NR6 is submitted to CRA before January 1 of the rental year or before the first rental payment is received. It estimates the net rental income for the year after expenses and requests that withholding be calculated on the net amount rather than the gross amount. CRA must approve the NR6 before the reduced withholding takes effect. Once approved, the property manager or tenant withholds 25% of the estimated net income each month instead of 25% of gross rent.

Submitting the NR6 creates an obligation to file a Section 216 return by June 30 of the following year. If the NR6 was approved and used but the Section 216 return is not filed on time, CRA can reassess the full 25% gross withholding and charge arrears interest at the current prescribed rate of 9% annually on the difference.

Who Should File a Section 216 Election?

Every non-resident landlord with deductible rental expenses should consider the Section 216 election. The calculation is straightforward: if your eligible expenses represent more than a small fraction of your gross rent, the election almost always results in a lower tax bill and a refund of excess withholding.

Non-residents who own Canadian rental properties and have also sold a property during the year need to coordinate the Section 216 return with the Certificate of Compliance requirement under Section 116. The certificate application and the Section 216 return are separate filings with separate deadlines but both involve the same CRA International Tax Services Office. Our blog on T2062 and T2062A explains which form applies when a non-resident sells the rental property after years of making Section 216 elections.

Non-residents leaving Canada who retained a rental property also face Deemed Disposition Canada rules on departure for certain property types. Our blog on Deemed Disposition Canada covers exactly which assets trigger deemed disposition on departure and which are excluded, including Canadian real estate that generates rental income.

Section 216 vs Section 217: Understanding the Difference

Non-residents sometimes confuse Section 216 with Section 217. They cover different types of Canadian income and produce different tax outcomes.

Item	Section 216	Section 217
Income type	Canadian rental income	Canadian pension, RRSP, RRIF, annuity payments
Default withholding	25% of gross rent under Part XIII	25% of gross payment under Part XIII
Election benefit	Pay tax on net rental income after expenses	Pay tax at graduated rates instead of flat 25%
Filing deadline	June 30 following the rental year	June 30 following the payment year
Filed with	CRA International Tax Services Office	CRA International Tax Services Office
Best for	Landlords with significant property expenses	Retirees with Canadian pension or RRSP income

A non-resident who receives both rental income and Canadian pension payments may need to consider both elections in the same year, though each election is made on a separate return.

Late Section 216 Returns and the Voluntary Disclosures Program

Missing the June 30 deadline is the most costly mistake non-resident landlords make. A late Section 216 return is not simply penalized like a late T1. CRA treats it as an invalid election entirely, which means the 25% gross withholding stands as the final tax with no adjustment for expenses. Years of overpaid withholding cannot be recovered through a late Section 216 return filed after the deadline.

The Voluntary Disclosures Program offers a limited path for non-residents who missed multiple years of Section 216 filings. VDP applications must be voluntary, complete, and involve a tax owing situation or a penalty situation. If CRA has already contacted you about the missing returns, the VDP is no longer available and you need to file the late returns and negotiate directly with CRA.

Tax Return Filers PC handles Non-Resident Tax Filing in Toronto, Section 216 elections and NR6 applications for landlords in Calgary, Departure Tax Return filings in Mississauga, and Certificate of Compliance in Calgary for non-residents selling Canadian property, ensuring every deadline is met and every eligible deduction is claimed on your rental return.

Conclusion

Electing under Section 216 is the single most effective tool a non-resident landlord has to reduce Canadian tax on rental income. The election replaces a flat 25% gross withholding with tax on actual net profit, which for most landlords with real expenses produces a meaningful refund every year. The NR6 form extends that benefit to monthly cash flow by reducing withholding throughout the year rather than waiting for a June refund. Missing the June 30 filing deadline costs more than a penalty. It costs the entire election.

Tax Return Filers prepares Section 216 returns, NR6 applications, and all related non-resident filings across Canada so landlords never miss a deadline and never leave excess withholding with CRA longer than necessary.