Canada's tax rules for non-resident real estate investors are among the most detailed in the OECD — combining a mandatory withholding regime, a beneficial net-income election, sale clearance certificate requirements, and a foreign buyer prohibition that continues to evolve in 2026. Understanding each layer is essential before committing capital to Canadian property.
The Foreign Buyer Prohibition: Current Status (2026)
The Prohibition on the Purchase of Residential Property by Non-Canadians Act (PPCA) was originally introduced in 2023 and has been extended. In 2026, non-Canadian persons are generally prohibited from purchasing residential property in Canada, with key exceptions:
- Temporary resident workers with a valid work permit (provided they meet specific criteria)
- International students meeting certain conditions
- Refugee claimants and protected persons
- Diplomatic staff
- Certain commercial transactions and rural properties
Always verify the current regulatory position with a Canadian immigration lawyer and real estate solicitor — the prohibition's scope, exemptions and enforcement have been subject to regulatory amendments.
Section 25 / Part XIII Tax: Withholding on Rental Income
Non-residents receiving Canadian rental income are subject to Part XIII Tax under the Income Tax Act. The default mechanism:
- 25% withholding on gross rent (not net income)
- Applied by the Canadian agent or tenant, who remits directly to the CRA (Canadian Revenue Agency)
- Required to be remitted by the 15th of the month following the month of payment
The 25% gross withholding is frequently more than the actual tax owed on net rental profits, which is why the Section 216 election is essential.
The Section 216 Election: Paying Tax on Net Income
Under Section 216 of the Income Tax Act, non-resident rental income recipients can elect to file a Canadian income tax return and pay tax on net rental income instead of gross rent. This allows deduction of:
- Mortgage interest
- Property management fees
- Maintenance and repairs
- Property taxes
- Insurance
- Depreciation (Capital Cost Allowance — CCA)
- Advertising and professional fees
- Arrange for your agent/tenant to remit either the 25% gross (default) or the reduced amount if you have a CRA Letter of Authority.
- File the Section 216 return by June 30 of the following year (non-resident special deadline).
- Pay tax on net income at graduated non-resident rates (typically 15–33% on net profits).
- Claim a refund if 25% gross withholding exceeds your net income tax owed.
Example:
- Annual gross rent: CAD $30,000
- Allowable deductions: CAD $12,000 (mortgage interest, management, maintenance)
- Net income: CAD $18,000
- Federal tax on net (at ~20.5%): ~CAD $3,690
- Default 25% gross withholding: CAD $7,500
- Refund via Section 216 election: ~CAD $3,810
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When a non-resident sells Canadian real estate, Section 116 imposes strict obligations:
- Notify the CRA of the pending sale at least 30 days before closing (or immediately if the notification cannot be given in advance).
- Obtain a Clearance Certificate — the CRA calculates the estimated capital gain and the non-resident pays the estimated tax (25% of the gain under Part XIII, or 25% at the Part I graduated rate if an election is made).
- Without a clearance certificate, the buyer is required to withhold 25% of the gross purchase price and remit to the CRA.
This withholding is on the total purchase price — not the gain — which can represent a very large sum even if the actual capital gain is small.
Practical implication: If you sell a CAD $800,000 property with a CAD $100,000 gain but no Clearance Certificate in place, the buyer withholds CAD $200,000 (25% of $800,000). The CRA holds this until the non-resident files and the actual tax is calculated. The refund process can take months.
Action: Apply for the Clearance Certificate well in advance of your planned closing date — ideally 60–90 days before.
Canada-UK and Canada-US Tax Treaties
Canada has DTTs with both the UK and USA that affect non-resident investor obligations:
- Withholding rates on rent: Under most treaties, the default 25% Part XIII rate may be reduced (e.g., UK-Canada treaty reduces some categories to 10% or 15%).
- Capital gains: Treaties may protect some non-resident investors from Canadian CGT on property sales — but real property is a significant exception, and the Section 116 clearance requirement typically still applies.
- Check the specific treaty with a Canadian tax advisor before assuming treaty protection.
T1135: Foreign Property Reporting for Canadian Residents
If you are Canadian resident (not a non-resident) owning foreign property with a cost exceeding CAD $100,000, you must file Form T1135 (Foreign Income Verification Statement) annually. Failure to file attracts substantial penalties (up to $25,000/year). This is a reporting requirement, not a tax — but missing it is a costly mistake.
GST/HST on Canadian Real Estate
- New residential construction: subject to 5% GST (or 13–15% HST in provinces with harmonized sales tax)
- Resale residential property: generally GST/HST exempt
- Short-term rentals (Airbnb, VRBO): treated as taxable supplies; HST/GST registration may be required above the $30,000/year threshold
- Commercial real estate: different rules; buyers may need to self-assess and remit HST
Conclusion
Canada's non-resident property tax framework is designed to ensure that foreign investors pay their fair share of Canadian tax — and the withholding and clearance certificate mechanisms enforce this at the transaction level. For rental investors, the Section 216 election is almost always worth filing: it converts a 25% gross withholding into a net-income tax, typically delivering a substantial refund. For sellers, the Section 116 clearance certificate is non-negotiable — without it, 25% of your gross proceeds sits with the CRA while your refund processes. Bordex models Canada's net investor returns incorporating both the Section 216 election benefit and estimated capital gains tax on exit, giving you a true picture of Canadian real estate economics before you invest.