Tenant Liability for a Non-Resident Landlord’s Tax Obligation

This post is based on a Globe and Mail article written about a 2023 Tax Court of Canada case where a tenant of a non-resident landlord was assessed and held liable for 25% of the rent payment to the landlord for failing to withhold and remit the amount (presumably + daily compounded interest) over the 2011-2016 taxation years (>$45K). This liability is found under subsection 215(6) of Part XIII of the Income Tax Act.

Setting aside the dubious fairness of a provision that requires more tax knowledge than the average tenant would have, even the CRA’s guidance on the matter addresses the landlord in explaining that they should be communicating to the tenant or property manager the requirement to withhold and remit 25% of the rent payment on behalf of the landlord, who has their own imposition of tax under subsection 212(1):

“If you receive rental income from real or immovable property in Canada, the payer (such as the tenant) or agent (such as the property manager) must withhold non-resident tax of 25% on the gross rental income paid or credited to you.

The payer must pay the tax on or before the 15th day of the month after the month the rental income is paid or credited to you. You should discuss this with your payer to make sure they withhold and remit the correct amount of non-resident tax to the CRA on your behalf.”

Very clearly the guidance is directed to the landlord and in the case above, there is no indication that the landlord communicated the tax withholding/remitting requirement or the liability the tenant faced. At minimum this begs an internal policy that requires the CRA to exhaust all collection opportunities such as garnishing the rent payment or putting a lien/seizing the property, under the worst case scenario.

And I hear the rebuttal, the law is the law and ignorance is no excuse. That very narrow interpretation ignores that the CRA has within its power and mandate to act equitably (see taxpayer fairness provisions).

Assessing the taxpayer does nothing to promote compliance among non-resident landlords and ultimately our tax system is based on voluntary compliance and the CRA has the obligation to promote that through its compliance activities.