It was a Tax Court of Canada case last year that went mostly under the radar by all except for the legal community who were taken aback by its implications for renters. A Montreal tenant was audited and ordered to pay the tax he had failed to withhold on the monthly rent to his non-resident landlord, as required by law. As a result, he was ordered to pay six years’ worth of tax as well as the compounded interest and penalties. The Canada Revenue Agency (CRA) could not collect against his overseas landlord, so the Canadian tenant was on the hook. Last year, the tenant took the Minister of National Revenue to court, arguing that he did not know his landlord was a non-resident. The tenant, whose Italy-based landlord owned a single unit in a Montreal building, lost the Tax Court appeal on the grounds that they were a Canadian resident paying rent to a non-resident landlord, and were therefore required to withhold and remit 25 per cent of the rent to the CRA. The judge acknowledged “the harsh consequences,” in her decision, but still held the “resident payer,” or renter, liable. The problem with the law is that residential rent is treated the same as a royalties or similar payments, said Montreal-based tax lawyer Eric Luu, who defended the tenant in the case. In other words, residential tenants are held to the same standard as “a sophisticated business,” he said. Not knowing a landlord is a non-resident is not considered a valid excuse. “It is concerning,” said Mr. Luu. “But it’s very hard to go after the non-resident, so they put the burden on the tenant. If you take a step back, set aside the way the Income Tax Act is drafted, and just look at the policy of it, in these situations, you have to ask yourself who has the leverage? Obviously, the tenant does not have the leverage. “The Department of Finance could come up with ways to ensure that non-resident landlords pay their taxes without defaulting to putting the burden on tenants,” said Mr. Luu. More coverage: A ‘weird’ March shows real estate market still off balance Liberal plan to build 3.87 million homes by 2031 includes new pledge to stem real estate fraud Alex Bozikovic: A denser city? In Toronto’s Annex, neighbours say no It’s well known that non-resident owners have long had to pay withholding taxes on properties they either sell or rent out. However, few renters and few in the real estate business are aware that if those taxes don’t get paid, the tenant could be on the hook, said long-time realtor Lorne Goldman. Mr. Goldman sells properties to non-residents, and said realtors – and all renters and all small mom-and-pop landlords – should be formally educated on the risks to tenants. “I’m in the real estate business, and I don’t even know about it,” said Mr. Goldman. “In my opinion, 99.99 per cent of all tenants in Canada are unaware of this, and it is the responsibility of the CRA to inform the renting public that they could be on the hook for this withholding tax.” In B.C., where one in 10 new condos are owned by a non-resident, what are the chances that some of those non-resident landlords are not filing their withholding taxes?, he asked. Non-resident landlord Chris Oliver, who owns three rental units in Vancouver and lives in Hong Kong, said he didn’t know about the withholding tax, but his property manager has it covered. Licensed property managers are responsible for collecting the taxes, which takes the burden off the tenant, assuming they pay through a property manager. “It sounds unfair for the tenants to be expected to handle this accounting rule,” said Mr. Oliver. “Can you imagine all the stress they are facing with having to hustle to pay their rents and the rising cost of living, and then to discover that there’s a whole complicated payments rule they are expected to manage?” Ron Usher, long-time lawyer and general counsel for The Society of Notaries Public and visiting professor at Simon Fraser University, said he was taken aback by the Quebec case when he learned about it last year.
