Holding Canadian Real Estate: A Tax Guide for U.S. Citizen and Non-Residents

Share on facebook
Share on google
Share on twitter
Share on linkedin
Reading Time: 3 minutes

Have you have been following our series of tax guides for U.S Citizens and non-resident Canadians? Then you may already know how complicated things can get when it comes to selling real estate as a non-resident. But there are matters that you should be aware of even if you’re not selling but holding real estate in that country.

Let’s begin:

Withholding Taxes

A 25% non-resident withholding tax Canada is also due on the gross rents you receive from the property. So make sure you remit this tax to the CRA 15 days after you receive the rent.

Annual CRA Filings

You can file Section 216 Return each year if you think you’ll get a refund. In a form on section 216 non-resident rental return, you will report your net rental income from Canadian rental properties you own. Sure, your Canadian residents pay rent at a graduated rate. However, the previously remitted 25% tax will reduce the amount you owe to the CRA. Then, they will refund the excess withholding tax.

Selling a Canadian rental property or Canadian real estate in the future? Here is a tax guide for non-residents to avoid any surprises.  

Gross and Net Rents

The NR4 Return you file each year identifies the amount you remit to the CRA as withholding tax. But that’s for gross rent. If you want them to deduct from the net rental amount, you must file the form NR6. Calculate both the expected gross and net income for your property along with the expenses. Include it with the NR6 Form, file, and wait for CRA’s approval. Remember if you are not a resident of Canada, you must file a Section 216 Return by June 30 if you choose the latter alternative.

Foreign and Canadian Real Estate Depreciation in the U.S.

The IRS has different tax rules for depreciating foreign rental properties, such as those that are owned by U.S. Citizens and non-residents of Canada. Unlike with the U.S. properties, here, the IRS will use an Alternative Depreciating System (ADS) on a 30 year for residential and 40-year for commercial. This is different from the U.S. properties since they have a 27.5 year for residential and 39-year schedule for commercial.

The Benefits of Depreciation

Depreciation is a reduction of the gross income when you rent out a property due to wear and tear. Alternate name of Depreciation in Canada is Capital Cost Allowance (CCA). The depreciation is related to structures and not the land you own.

Depreciation is a temporary benefit and when you sell the property, the IRS will subtract the accumulated depreciation. So, you will pay an additional tax – there are exceptions.

How to Calculate Foreign Property Depreciation in 5 Steps

  1. First you need to calculate depreciation basis. Basis is FMV or purchase price on date of placing in service minus the land. For example, foreign property FMV or purchase on date of service is $800,000 and $250,000 is related to land. 

Formula: Depreciation Basis = Purchase Price or FMV of Total Property – Land Cost


Depreciation Basis= $550,000 ($800,000 – $250,000)

  1. Next you’ll need to figure out the number of years it will take for the property to depreciate. Foreign residential property is depreciated over 30 years and Foreign commercial property is depreciated over 40 years using Alternative Depreciating System (ADS).
  2. To determine the depreciation amount, divide the depreciation basis by the number of years.

Formula: Depreciation Amount = Depreciation basis / Number of years

Depreciation amount = $18,333* ($550,000 / 30 years)

*The first and last year depreciation amount will be different due to timing of the placement of the property in service as there might not be full twelve months.

Thus, on a foreign property worth $800,000, $250,000 is related to land. It means the property owner can depreciate it $18,333 for 30 years or $13,750 for 40 years. Say, you own real estate that brings you $20,000 per year but costs $10000 in expenses and property tax. With a depreciation of $18,333 or $13,750, your income becomes zero thus resulting in zero tax.

AKIF CPA can craft a tailored tax solution for you any day. So, if you’re in tax trouble because you weren’t aware that you had to report foreign rental income, call us. Or, if your filing ended up below the threshold for it in a foreign country, get in touch. We also assist clients regarding any other unreported income, assets, accounts, and investments they might have. So, contact us before the IRS contacts you!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Akif CPA will not be held liable for any problems that arise from the usage of the information provided on this page.

Leave a Reply

Your email address will not be published. Required fields are marked *

Client Reviews
Based on 95 reviews
powered by Google
Ammoria Daniels
Ammoria Daniels
02:11 16 Sep 21
We contacted Akif with an urgent matter regarding corporate taxes. Akif immediately understood what was needed and... within days had everything ready to sign. The level of service we received was amazing and unmatched. Waqar expertise in trucking industry made our situation seamless. His communication was outstanding; I heard from him daily and could have been completed sooner if I was as fast as he was 😃 Highly recommended!read more
Joe Paneitz
Joe Paneitz
18:30 18 Aug 21
What an absolute pleasure to work with this CPA firm. My business is already seeing such a positive impact and growth.... I cannot believe I didn't connect with them sooner. This firm is helping in so many ways! 5 stars is an understatement! Thank you so much for your help AKIF CPAread more
Helptest ARCpoint Labs
Helptest ARCpoint Labs
15:02 18 Aug 21
The firm is quick, responsive, and has the latest technological software. Thus far, I have been with them for 3+ years... and will continue to work with them even after relocating. They make it easy even when I'm miles away. Would highly recommend them.read more
Luz Tipaz
Luz Tipaz
16:06 13 Jul 21
Saim and his team are the best CPAs in town. I have been their client for years. All started when I needed help with... company structure with multiple companies and then accounting and Taxes. I have been very happy ever since. Thank you AKIF CPA.read more
Maria perez
Maria perez
18:31 08 Jun 21
Me and my husband have been getting all of our personal Taxes, business Taxes, monthly bookkeeping, accounting and... payroll done with AKIF CPA. Recently, we had more stuff come up and had detailed analysis done on capital gains, single family rentals (SFR) and business disposition. You will only know how great this CPA company is until you have worked with them and given them a chance. Words can’t describe our experience. AKIF CPA gets the job done every time - very reliable, professional and affordable.read more
Afnaan Amin
Afnaan Amin
22:14 02 Jun 21
Very good experience, we had unique situation in regards to cross border income as Canadians currently residing in the... US. Income on both sides of the border through completely different channels. Everything was very easy and completed timely, I also had lots of random questions and Mohammad provided top notch service along the way and even after we finished our taxes!! Highly recommended.read more
Ryan Paton
Ryan Paton
10:56 08 May 21
I moved to the USA from Canada late 2018 as part of a promotion/relocation for work. For my 2019 returns, I used an... accounting firm recommended by the local Canadian social club in my city, which was a terrible experience. They were slow to respond to inquiries and would follow up in piecemeal requests which dragged out my return process over several months, often asking for information I had already provided.For the price I paid, I vowed to find better service. I found Mohammad online and decided to reach out. Mohammad was extremely responsive, took care of my US and Canadian returns as well as my wife's business returns in a timely manner. Overall, it was a very positive experience and I would recommend him to another in my situation.read more
Tuan Vo
Tuan Vo
01:59 20 Apr 21
I relocated to Texas from Alberta, Canada and needed a CPA to help me with my cross-border taxes as I was not happy... with the CPA that I used previously. During my interviewing process to find another CPA, I had good feedback from Mohammad as he was able to answer my questions regarding my unique tax situation with expertise, and importantly to me, in a timely manner. I decided to use his services for the current tax year and I have nothing but compliments for the work Mohammad provided. If you are in need of a professional cross-border CPA, I highly recommend reaching out to Mohammad Akif.read more
See All Reviews