Do you know the tax residency of your landlord? If not, you might want to consider verifying this information as harsh results can arise for tenants paying rent to persons who are, unbeknownst to them, non-residents of Canada. In 3792391 Canada Inc.  v. The King1, the Tax Court of Canada confirmed that a tenant is liable for payment of Part XIII tax on rental payments made to a non-resident landlord, even when they are not aware of the latter's tax residency.


Non-residents earning rental income in Canada are generally subject to Part XIII tax, which imposes a 25% withholding tax on every amount that a person resident in Canada pays or credits to a non-resident person. 2 unless a rate reduction applies pursuant to a tax treaty entered into between Canada and the non-resident's country of residence. To ensure collection of Part XIII tax, section 215 of the Income Tax Act   (“ITA”) provides that a person paying an amount that is subject to Part XIII tax has the obligation, notwithstanding any agreement or law to the contrary, to withhold at source the appropriate tax amount and remit it to the Canada Revenue Agency (“CRA”)3. When the tenant fails to deduct or withhold as required by section 215, they become personally liable to pay, on behalf of the non-resident, the tax that should have been withheld4. In addition, the person who has failed to remit may be subject to the payment of interest and penalties.5 Any amount paid by the tenant as a Part XIII tax on behalf of the non-resident landlord can, however, be recouped by the tenant by deducting and withholding from other payments they are required to make to their landlord.


In this decision of the Tax Court of Canada, 3792391 Canada Inc. (“391”) operated a Montreal-based gym in a space rented from a non-resident individual between the taxation years of 2011 to 2016. However, 391 never withheld Part XIII tax on the gross amounts it paid to the landlord throughout the term of the lease. Consequently, the CRA assessed 391 for failure to withhold and remit Part XIII tax on the rental payments it paid to its non-resident landlord, and applied interest and penalties.

391 argued that it should not be liable for Part XIII tax as it had no knowledge, nor did it have any reason to believe, its landlord was a non-resident of Canada. To that effect, 391 submitted that the landlord had a Canadian address and phone number, and that 391's shareholder met her multiple times in Montreal. However, the evidence also showed that there were signs of the landlord not residing in Canada, including an international phone number, an email address ending in “.it” instead of “.ca” or “.com”, and a mention in the lease that the landlord signed it in Italy.

The Minister responded by arguing that knowledge was not required to be liable for Part XIII tax since section 215 ITA only requires that a Canadian resident fails to deduct or withhold such tax on amounts paid to a non-resident.

The court agreed with the Minister's arguments with respect to the lack of a knowledge requirement in section 215. In his analysis, the judge stated that the predecessor to section 215 was first introduced to support the administration of the charging provision imposing tax on non-residents. Accordingly, the history of section 215 ITA showed that there was no knowledge requirement in the withholding provision when it was first introduced, and that none had been added since. The judge further noted that when the legislator wants to limit a taxpayer's liability to circumstances where they have knowledge or belief, it expressly does so, such as in subsection 116(5) ITA. With respect to the penalties imposed on 391, the judge noted that a due diligence was available, however 391 had not proven that it had exercised reasonable care to ensure compliance with its obligations.


The implications for landlords and tenants are evident—Canadian tenants making payments to non-resident landlords are obligated to withhold 25% of the gross amount and remit it to the CRA. The recent 3792391 Canada Inc. decision underscores the nuances involved in adhering to the obligations set forth in Part XIII of the ITA, emphasizing the need for tenants to exercise a heightened level of diligence to ensure compliance.

To navigate this landscape effectively, tenants should proactively request a Certificate of Residency from the landlord. Whether the landlord is an individual, a corporation, or a trust, they have the option to furnish the tenant with a certificate obtained from the CRA. The Landlord must ensure that their tax returns are filed and up to date. The exchange of this certificate proves mutually beneficial—while the landlord maintains the confidentiality of their income tax statements and information, the tenant gains confidence in their decision to withhold and remit funds as required.

One must acknowledge, however, that the ITA residency status of landlords can undergo changes throughout the term of a lease. As a proactive measure, we encourage tenants engaged in lease negotiations to incorporate a clause ensuring that landlords promptly notify them if their residency status under the ITA undergoes any alterations. This provision enhances transparency and collaboration, nurturing a relationship grounded in compliance and a mutual commitment to effective and practical cooperation.

For further information on the tax treatment of rental payments for tenants and landlords, please contact a member of Miller Thomson's  Corporate Tax Team.


1. 2023 TCC 37 [informal procedure].

2. Paragraph 212(1)(d).

3. Subsection 215(1).

4. Subsection 215(6).

5. Subsections 227(8) and and 227(8.3).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.