Condominium tower in Yaletown, Vancouver, 2019.Darryl Dick/Globe and Mail
This is a case that occurred in the Tax Court of Canada last year and received little attention outside the legal community, which was surprised by the impact on renters.
A Montreal tenant was audited and ordered to pay taxes he had failed to withhold on his monthly rent to his non-resident landlord, as required by law. As a result, he was ordered to pay six years’ worth of taxes, compound interest, and penalties. The Canada Revenue Agency (CRA) was unable to collect from overseas landlords, leaving Canadian tenants in a bind.
Last year, the tenant took the Minister of Revenue to court, claiming he did not know the landlord was a non-resident. The tenant, whose Italian-based landlord owned a unit in a Montreal building, was required to withhold and remit $25 per year because he is a Canadian resident and pays rent to a non-resident landlord. The company lost its appeal to the Tax Court on the ground that it was Cents of rent is paid to CRA. In his judgment, the judge acknowledged the “harsh consequences” but held that the “occupant payer”, or landlord, was still responsible.
The problem with the law is that it treats residential rent the same as royalties or similar payments, said Eric Roux, a Montreal tax lawyer who represented tenants in the case. In other words, residential tenants are held to the same standards as “sophisticated businesses,” he said.
Not knowing that the landlord is a non-resident is not considered a valid excuse.
“That’s alarming,” Lu said. “But it’s very difficult to go after non-residents, so it puts a burden on tenants. If you take a step back and put aside the way the income tax law was drafted and just look at the policy. In such a situation, you have to ask yourself who has the power. Naturally, the tenant does not have the power.
“The Treasury Department could come up with a way to ensure non-resident landlords pay their taxes without imposing a burden on tenants,” Lu said.
It is well known that non-resident owners have had to pay withholding tax on properties they sell or rent for many years. But according to longtime real estate agent Lorne Goldman, few renters and real estate industry insiders realize that tenants could be in trouble if these taxes aren’t paid. That’s what it means. Goldman, who sells properties to non-residents, said real estate agents, as well as all renters and all small family landlords, should be formally educated about the risks to tenants.
“I’m in the real estate business, but I don’t know about that,” Goldman said. “In my opinion, 99.99 per cent of all tenants in Canada are not aware of this. It is the CRA’s responsibility to inform renters that they may be at risk of this withholding tax.”
In British Columbia, 1 in 10 new condos are owned by non-residents, but what are the chances that some non-resident landlords are not reporting their taxes withheld? ? he asked.
Chris Oliver, a non-resident landlord who owns three rental units in Vancouver and lives in Hong Kong, said he wasn’t aware of the withholding tax, but that his property manager would cover it. A licensed property manager is responsible for collecting the taxes, and the burden is alleviated for the tenant, provided the tenant pays through the property manager.
“It seems unfair that tenants are expected to deal with this accounting rule,” Oliver said. “Can you imagine the stress they face, juggling rising rents and living costs and finding themselves having to manage even more complex payment rules?”
Ron Usher, a longtime lawyer, general counsel for the Notary Association and visiting professor at Simon Fraser University, said he was shocked when he learned of the Quebec case last year. He wonders how many non-resident landlords don’t pay their taxes.
“How many tens of thousands of situations are there where this isn’t done? The exposure to tenants is huge. …The story right now is that it’s strange, it’s surprising, and it appears to be the law.” I think that’s the case.”
He added that determining whether someone is a resident or a non-resident is “breathtakingly difficult”.
“We’re talking about tax residency, not physical residency. They might be in San Diego, but they’re actually taxpayers, so that creates complications. Masu.”
Michael Druillard is vice-chairman of Landlord BC and a specialist in lease law. Although Drouillard had long known about the potential for tenants to be held liable from his time as a property manager, he said he was still surprised to see tenants held liable.
“I’m surprised to see that they actually did this in the context of a residential lease,” he said.
“I don’t think it’s a good idea for the CRA to go after residential tenants who don’t know anything. They’re never told they’re liable forever. [are held to] This level of diligence.
“How can you expect that from a residential tenant?” he asked. “They have enough to figure out. They don’t need a potential huge tax liability that they weren’t aware of.”
The government considers a person to be non-resident if they reside in Canada for fewer than 183 days a year or are not “ordinarily” resident in Canada. Generally, non-residents are subject to tax on income earned in Canada, including rental income. The Government of Canada website states: “To ensure the correct amount is deducted, it is important to tell your Canadian payer: [such as renters] Prove that you are a non-resident for income tax purposes. ”
Tenant Mariana Makurkina, who found her apartment on Facebook Marketplace, said she only found out her landlord lived abroad after doing her own research. She says she has a property manager, but without that third-party protection, she wouldn’t have been able to ask her landlord when she signed the lease. Also, what landlord wants to ask if they pay taxes in Canada?
“This never came to my attention, and I could almost guarantee that no one would know about it,” Maklukina said.
Donald McKenzie, property manager at Bordwell Rental Property Management, said his company regularly requests remittances from non-resident landlords, who make up about 10 to 15 percent of its customers. However, some non-residents said they did not want to pay taxes.
“And I said, ‘I don’t want to work with you.’ It’s that simple. But most owners would say, ‘Make sure you’re in compliance.'”
But Drouillard wonders why more clear information isn’t provided for tenants. Tenants are struggling to find affordable apartments and may not know their landlords live outside Canada.
To protect themselves, Drouillard said tenants may start requiring landlords to make statutory declarations proving their tax residency status. However, it is possible that the landlord moves out of the country and the status changes, but the tenant does not know.
BC lease agreements do not require landlords to provide proof of residency status. However, when homeowners sell their property, they must list their tax residence. This is intended to protect the buyer from liability if there are unpaid taxes. Tenants need similar protections.
“In the context of a housing crisis, why not also have landlords investigated?” Drouillard said. “That’s not to say it’s not the law, and tenants should be aware of that. The question is, is this the right thing to do as CRA policy?”
The CRA did not respond to requests for comment.
