Are you sending rent payments to a non-Canadian account? Did your landlord give you overseas contact details? Do you suspect your landlord might live outside of Canada? These are red flags that you could be at risk of a nasty surprise from the Canada Revenue Agency if you haven’t been withholding 25% of the rent. A tenant was found retroactively liable for over $40,000 of his landlord’s unpaid taxes, compounded interest and penalties by the Tax Court in January 2024.
To understand how this could happen, we need to look at Part XIII of the Income Tax Act, which concerns tax on Canadian income of non-residents.
THE LAW
Generally, non-residents are required to pay an income tax of 25% on any of a range of payments they receive from Canadian residents, including rent. This is an obligation on the landlord.
The issue for the tenant comes from the withholding and remittance provisions of the Act. To facilitate collection of the tax from persons who may be overseas and difficult to reach, s 215 requires the person paying the amount on which income tax is payable to withhold the amount of the tax and remit it to CRA on behalf of the non-resident person. In other words, the Act puts responsibility for paying the recipient’s tax on both the recipient and the person paying (in a tenancy, the tenant). S 215(6) makes the person paying liable to pay on behalf of the non-resident person the whole of the amount that should have been withheld.
Unfortunately, many people are unaware of this shared obligation and consequent liability.
… Read the full article here: 2024 Decision Brings New Perils for Tenants: Beware the Non-Resident Landlord