Non-Resident Withholding Tax in Canada: What’s Final and What Isn’t 

Last updated: Dec 15,  2025

Non-residents earning income from Canadian sources are often told that Canadian withholding tax is “final.” While this is sometimes true, it is not universally correct. In many situations, non-resident withholding represents only a prepayment of tax, and filing a Canadian return or election can significantly reduce the overall tax cost.

Understanding when withholding tax is final- and when it can be recovered or recalculated, is essential for non-residents seeking to remain compliant while avoiding unnecessary overpayment.

What Is Non-Resident Withholding Tax in Canada?  

Non-resident withholding tax generally applies to certain types of Canadian-source income paid to non-residents. The tax is typically withheld at source by the payer and remitted to the CRA under Part XIII of the Income Tax Act.

The default withholding rate is 25% of the gross payment, unless a tax treaty reduces the rate. The payer, not the non-resident, is usually responsible for withholding and remitting the tax.

Common Types of Income Subject to Withholding 

Non-resident withholding commonly applies to passive or fixed income, including rental income, pensions, RRSP and RRIF withdrawals, dividends, royalties, and certain management or service fees.

The key feature of these income types is that tax is withheld on the gross amount, without regard to expenses or personal tax credits—unless an election or filing changes the result.

When Is Non-Resident Withholding Tax Final? 

In many cases, withholding tax is considered final Canadian tax, meaning no Canadian tax return is required and no further adjustment is available. This is most common for:

• RRSP and RRIF withdrawals
  
  

• CPP, OAS, and pension income
  
  

• Dividends and interest subject to treaty rates
  
  

When withholding is final, the non-resident reports the income only in their country of residence and may claim a foreign tax credit for the Canadian tax paid.

When Is Withholding Tax Not Final?

Withholding tax is not final when the Income Tax Act allows a non-resident to file an election or return to recompute tax using net income or graduated rates.

The most common examples include:

• Rental income, where a Section 216 return allows tax on net rental income instead of gross rent
  
  

• Pension and retirement income, where a Section 217 return allows resident tax rates and credits
  
  

• Employment or business income, which may require a full Canadian tax return rather than Part XIII withholding
  
  

In these cases, withholding acts as a prepayment, and filing may result in a refund.

Section 216: Rental Income and Net Taxation 

For non-residents earning rental income from Canadian real estate, the default rule is 25% withholding on gross rent. This amount is rarely representative of the actual tax payable.

By filing a Section 216 return, the non-resident can report net rental income after expenses, often resulting in a lower tax liability. Any excess withholding can be refunded.

In addition, non-residents may apply to have withholding calculated on net income during the year by filing Form NR6, subject to CRA approval.

Section 217: Pension and Retirement Income

Certain Canadian-source pension and retirement income may be eligible for a Section 217 election. This allows non-residents to be taxed at graduated rates and claim personal credits, rather than being subject to flat withholding.

Where total income is modest, a Section 217 filing can significantly reduce tax and generate a refund. Filing deadlines are strict, and late elections may not be accepted.

How Do Tax Treaties Affect Withholding?

Canada’s tax treaties often reduce withholding rates, particularly for U.S. residents. For example, treaty rates may reduce withholding on pensions or RRSP withdrawals from 25% to 15%.

However, treaty-reduced withholding is not always the lowest possible tax outcome. Even after treaty relief, filing under Section 216 or 217 may still produce a lower effective tax rate.

Treaties also play a critical role in allowing foreign tax credits in the non-resident’s country of residence.

Common Misconceptions About Withholding Tax 

A frequent misunderstanding is assuming that “withheld” automatically means “correct.” In reality, withholding is often conservative and may exceed the tax actually payable.

Another common error is assuming all non-resident income is treated the same. The tax treatment depends heavily on the type of income, not just non-resident status.

Failing to review withholding annually can result in years of unnecessary overpayment.

Reporting and Compliance Considerations 

Even when withholding is final, non-residents may still receive NR4 slips reporting Canadian income and tax withheld. These slips should be retained and coordinated with foreign tax filings.

Where elections or returns are required, missing deadlines can permanently eliminate refund opportunities and complicate future compliance.

Final Thoughts

Non-resident withholding tax in Canada is sometimes final, but often it is not. The difference depends on the nature of the income, treaty protection, and whether the non-resident takes advantage of elective filings available under Canadian tax law.

For non-residents with ongoing Canadian income, periodic review of withholding treatment can result in meaningful tax savings and improved compliance. Understanding what’s final and what isn’t is the key to avoiding overpayment.

Frequently Asked Questions (FAQs) 

What is non-resident withholding tax in Canada? 

Non-resident withholding tax is a tax withheld at source on certain types of Canadian-source income paid to non-residents. It is generally withheld under Part XIII of the Income Tax Act and is usually calculated as a percentage of the gross payment. 

Is Canadian non-resident withholding tax always final?

No. While withholding tax is final in many cases, it is not always the correct or lowest tax outcome. Certain types of income allow non-residents to file a return or election to recalculate tax and potentially claim a refund. 

What types of income are subject to non-resident withholding tax? 

Common types of income subject to withholding include rental income, pensions, CPP and OAS, RRSP and RRIF withdrawals, dividends, royalties, and certain management or service fees. The tax treatment depends on the specific type of income. 

When is withholding tax considered final Canadian tax? 

Withholding tax is typically final for income such as RRSP and RRIF withdrawals, pension income, dividends, and interest, particularly when treaty-reduced rates apply. In these cases, no Canadian tax return is usually required. 

When is withholding tax not final? 

Withholding tax is not final when Canadian tax law allows a non-resident to file an election or return to determine tax on a different basis. Common examples include rental income under Section 216 and certain pension or retirement income under Section 217. 

Can non-residents recover withholding tax on Canadian rental income? 

Yes, in many cases. Non-residents earning rental income can file a Section 216 return to be taxed on net rental income instead of gross rent. This often results in a refund of excess withholding. 

Can pension or RRIF withholding be reduced after the fact? 

Possibly. Certain pension and retirement income may qualify for a Section 217 election, allowing tax to be calculated using graduated rates and personal credits rather than flat withholding. 

Do tax treaties make withholding tax final? 

Not necessarily. Tax treaties often reduce withholding rates, but treaty-reduced withholding may still exceed the tax payable under a net or graduated-rate calculation. Filing may still be beneficial even when treaty rates apply. 

Do non-residents receive tax slips for withholding tax? 

Yes. Non-residents typically receive NR4 slips showing Canadian income paid and tax withheld. These slips are important for foreign tax reporting and any Canadian filings. 

What happens if a non-resident does not review withholding tax treatment? 

Failing to review withholding tax can result in overpayment, missed refunds, or lost filing opportunities. In some cases, missed deadlines permanently eliminate the ability to recover excess tax. 

Should non-residents seek professional advice on withholding tax? 

Yes. Determining whether withholding tax is final depends on income type, treaty relief, filing options, and coordination with foreign tax returns. Professional advice helps ensure compliance while minimizing overall tax exposure.