NR6 vs. Section 216: Which Is Better for Rental Income?

Last updated: Dec 16,  2025

Non-residents earning rental income from Canadian real estate are often told that 25% tax must be withheld on their rent. While this is the default rule, Canadian tax law provides two important mechanisms- Form NR6 and Section 216 of the Income Tax Act, that can significantly change how and when tax is paid.

These two concepts are frequently confused. Understanding the difference between NR6 and Section 216, and how they work together, is critical for minimizing tax, managing cash flow, and staying compliant.

How Rental Income Is Taxed by Default for Non-Residents 

When a non-resident earns rental income from Canadian property, the default rule is 25% withholding on gross rent, remitted monthly to the CRA. This withholding applies regardless of whether the property is profitable and without considering expenses such as mortgage interest, property taxes, insurance, or repairs.

In many cases, this results in substantial over-withholding, particularly for leveraged or marginally profitable properties. NR6 and Section 216 exist to address this issue but they do so in different ways.

👉 Read more: Sec 216 filing obligations

What Is Section 216? 

Section 216 allows a non-resident to file a Canadian tax return to report net rental income, rather than being taxed on gross rent. By filing a Section 216 return, the non-resident can deduct eligible rental expenses and calculate tax based on actual profitability.

Any tax withheld during the year is credited against the final tax liability, and excess withholding may be refunded. Section 216 is an annual filing, and while it is optional, it is often beneficial where rental expenses are significant.

Importantly, Section 216 applies after the year has ended. It does not change how much tax is withheld during the year- it only determines the final tax outcome.

What Is Form NR6?

Form NR6 is a withholding reduction request, not a tax return. It allows a non-resident to apply to the CRA to have withholding calculated on net rental income instead of gross rent, on an ongoing basis.

If the CRA approves the NR6, the tenant or property manager withholds 25% of estimated net income, rather than gross rent. This improves cash flow throughout the year but comes with an important condition: a Section 216 return must be filed by June 30 of the following year.

NR6 is therefore a pre-approval mechanism that affects how much tax is withheld during the year, while Section 216 determines the final tax payable.

Key Differences Between NR6 and Section 216 

The most important distinction is timing and function. Section 216 is a retroactive filing that determines final tax after year-end. NR6 is a prospective election that reduces withholding during the year but requires follow-up compliance.

Another critical difference is obligation. Filing a Section 216 return is optional. Filing an NR6 creates a mandatory Section 216 filing requirement, with strict deadlines. Failure to file the Section 216 return after using NR6 can result in penalties and loss of the withholding reduction.

Can You Use Both NR6 and Section 216?

Yes- and in practice, they are often used together.

NR6 improves cash flow by reducing withholding during the year. Section 216 is then filed after year-end to calculate the actual tax payable based on net income. Using NR6 without filing Section 216 is not permitted, but filing Section 216 without NR6 is common.

Which Option Is Better for Rental Income? 

The answer depends on your priorities.

If your primary concern is cash flow, NR6 combined with a timely Section 216 filing is often the better option. This is especially useful where rental income is stable and expenses are predictable.

If simplicity and flexibility are more important, filing only a Section 216 return may be preferable. You’ll recover excess withholding after the fact without committing to strict filing deadlines during the year.

For first-time non-resident landlords, many advisors recommend starting with Section 216 alone, then adding NR6 once income and expenses are better understood.

Common Mistakes Non-Residents Make 

A frequent mistake is assuming NR6 replaces the need for a tax return. It does not. NR6 without a filed Section 216 return can trigger penalties and CRA scrutiny.

Another common error is missing the June 30 deadline for Section 216 filings following an NR6 approval. This deadline is much earlier than many non-residents expect and is strictly enforced.

Finally, some non-residents never review whether withholding is excessive, resulting in years of unnecessary overpayment.

How Tax Treaties Affect NR6 and Section 216 

Tax treaties may reduce the withholding rate on rental income, but they do not eliminate the benefit of NR6 or Section 216. Even treaty-reduced withholding is still applied to gross rent, making net-income taxation through Section 216 highly relevant.

Treaties are more important for coordinating foreign tax credits in the non-resident’s country of residence than for determining Canadian filing obligations.

Final Thoughts

NR6 and Section 216 are not competing options, they are complementary tools designed to ensure non-residents are taxed fairly on Canadian rental income. Section 216 determines the correct tax. NR6 improves cash flow while you get there.

Choosing the right approach depends on the size of the rental portfolio, predictability of expenses, and tolerance for compliance obligations. With proper planning, these rules can significantly reduce over-withholding and improve after-tax returns.

Frequently Asked Questions (FAQs) 

What is the difference between NR6 and Section 216?

Section 216 is a Canadian tax return that allows non-residents to report net rental income after expenses. Form NR6 is a request to reduce withholding during the year by calculating tax on estimated net income. NR6 affects cash flow, while Section 216 determines the final tax payable. 

Is NR6 required to file a Section 216 return?

No. Filing a Section 216 return is optional and does not require an NR6. However, if an NR6 is approved, filing a Section 216 return becomes mandatory. 

Does filing NR6 eliminate the need for a tax return?

No. NR6 does not replace a tax return. If you use NR6 to reduce withholding, you must file a Section 216 return by June 30 of the following year. Failure to do so can result in penalties and reassessment. 

When should Form NR6 be filed?

Form NR6 must generally be submitted to the CRA before the start of the year in which you want reduced withholding to apply, or before the first rental payment of the year. Late filings may not be accepted. 

What happens if I don’t file a Section 216 return after using NR6? 

If a Section 216 return is not filed after an NR6 approval, the CRA may deny the withholding reduction, assess penalties, and require tax to be recalculated on gross rent. 

Is Section 216 beneficial if I have rental losses or high expenses? 

Yes. Section 216 is particularly beneficial when rental expenses are significant, as it allows tax to be calculated on net income rather than gross rent. This often results in a refund of excess withholding. 

Can I file both NR6 and Section 216 in the same year? 

Yes. In fact, they are often used together. NR6 reduces withholding during the year, and Section 216 is filed after year-end to calculate the actual tax payable. 

Does a tax treaty remove the need for NR6 or Section 216? 

No. While tax treaties may reduce withholding rates, they do not eliminate the benefit of taxing rental income on a net basis. NR6 and Section 216 remain relevant even when treaty relief applies. 

What is the withholding rate if I don’t file NR6? 

Without an NR6, withholding is generally 25% of gross rent, regardless of expenses. This amount may exceed the actual tax payable and can only be recovered by filing a Section 216 return. 

Should non-residents get professional advice before filing NR6 or Section 216?  

Yes. NR6 creates mandatory filing obligations and strict deadlines. Professional advice helps ensure accurate estimates, timely filings, and proper coordination with foreign tax returns.