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Court Ruling Could Potentially Hurt Tenants

Court Ruling could Potentially Hurt Tenants

A Montreal tenant has been ordered to pay six years’ worth of tax on his monthly rent that his overseas landlord failed to fork over to the Canadian government.

The court ruling, delivered by the Tax Court of Canada upon appeal, also found the tenant liable for the compounded interest and penalties incurred during the time period.

The Canada Revenue Agency (CRA) went after the tenant when it could not collect against his Italy-based landlord.

Subsequently, the tenant took the Minister of National Revenue to court, citing he did not know his landlord was overseas. However, the Tax Court determined that was not a justifiable defence.

Under existing Canadian law, tenants renting from non-resident landlords must withhold and remit up to 25% of their rent to the CRA; that is, unless a property manager or other similar third-party is handling it, taking the burden off the tenant.

The government considers a person a non-resident if they reside in Canada less than 183 days out of the year, which is basically the equivalent of six months, or does not “ordinarily” reside in Canada. Generally, non-residents are subject to tax on income earned in Canada, including rental income.

Tenants should take necessary steps prior to signing a lease agreement to protect themselves. This may include conducting a land titles search to check the landlord’s contact information for a non-Canadian address, phone number or e-mail; adding a clause in the lease agreement regarding the landlord’s tax residence and any associated obligations; and asking for a certificate of residency from the CRA or a statutory declaration from the landlord, attesting to their tax residency status. However, if the landlord moves out of the country unbeknownst to the tenant, this declaration would no longer have any bearing.