Canadian Renters Required To Collect Foreign Landlord’s Taxes

1,802Views 0Comments Posted 17/05/2024

May 16 2024:  Canadian renters are now tax collectors for CRA.  They are required to collect foreign landlord’s taxes, about 25% of rent, withhold that amount and submit it to CRA soon after paying rent or face penalties.  Canadian renters are getting a rough introduction to the country’s foreign investor problem. The Canada Revenue Agency (CRA) just informed tenants they’re on the hook for any unpaid taxes their non-resident landlord may owe. In a bizarre decision, the nation’s tax authority is telling tenants who pay rent to non-resident landlords to withhold a portion and remit it on their behalf, or they may be liable for the amount with penalties. To complicate things further, one Ontario policymaker warns tenants that have inquired about withholding have been threatened with eviction. 

Canada Tells Tenants To Withhold Rent From Foreign Landlords who are Non-residents and earning income in Canada.  These foreign landlords are subject to a withholding tax, a general rate of income to be withheld to ensure that the non-resident tax bill can be recovered if the foreigner landlords never file taxes. That includes any non-resident that receives rental income from property, and that withholding rate is generally 25% of the gross income. Not really surprising, since other countries also engage in this tactic. What is surprising is the latest ruling that requires the payer to submit those funds on behalf of their non-resident landlord.

According to the CRA, a payer (tenant) or agent (property manager) must withhold 25% of the gross rental income paid or credited to the landlord, and then submit it to the CRA within 15 days after they’ve paid rent. In addition, the tenant of a non-resident is required to file an NR4 tax form. If the payer fails to withhold, remit the amount, and file an NR4—they may be held liable. The CRA also threatens they may charge interest compounded daily, as well as additional penalties on top of the amount. 

An Ontario Lawmaker Warns Tenants That This Sounds Bizarre?  It gets even weirder according to a provincial lawmaker in Ontario. MPP Jessica Bell warns that a lack of publicly accessible beneficial ownership registry means it’s entirely up to the property owner’s disclosure. That can be problematic, especially since the CRA deals at the federal level, but landlord disputes are provincially managed.  In an open letter to Ontario’s housing minister, MPP Bell outlines the hurdles a constituent faced navigating this situation.

The CRA advised the tenant to withhold 25% of their gross rent if their landlord was a non-resident. However, the landlord refused to disclose their residency status. When the tenant advised the landlord they will be withholding the funds for the CRA, they were threatened with eviction via the provincial authority. It’s hard to see a provincial court ruling over a federal tax ruling, but it’s also hard to see tenants being held responsible for paying their landlord’s taxes. This whole system is a mess.  In addition to the stress and frustration of doing their landlord’s taxes, renters may also be required to dispute an eviction. Even if things work out, it sounds like a strangely complicated way to deal with a relatively common issue. 

Ontario NDP Wants Rule Changed, Tenants Protected From Liabilities.  As wild as all of this sounds, it appears only the provincial opposition in Ontario has noticed (or cares). “The CRA should reverse its policy immediately, and not force tenants to pay their foreign landlord’s taxes or risk eviction, ever,” wrote MPP Bell in their open letter.  In addition to calling on the Federally-managed CRA to make changes, she also wants to see the province move to ensure these tenants are protected. 

“The province should direct the Landlord and Tenant Board to deny any landlord’s application to evict if the tenant is being forced to withhold rent to pay their landlord’s taxes,” she noted.  Further adding the recommendation, “Ontario should establish a beneficial ownership registry so the identity of a property owners is part of the public record, and a tenant can easily know if their landlord is foreign or not.”