What many tenants don't know is there is a specific section of the Income Tax Act indicating that they are responsible to withhold 25% of the rent they pay to non-resident tax residents of Canada.
Crowe MacKay's tax advisors explain the responsibilities of a tenant whose landlords are not Canadian tax residents and how they can navigate these tax obligations and avoid potential interest charges and penalties.
Most tenants are not familiar with their filing obligations and their responsibility to withhold funds and perform administrative duties, such as filing certain slips and information returns in a timely manner with the CRA. In the Income Tax Act, tenants (or payers) whose landlord is a non-Canadian tax resident should be withholding 25% of the rent they pay. Tenants are also required to open up a special non-resident tax account and send the withholdings to the CRA directly on or before the 15th of the month after the rental income is paid. Failure to make payments on time could result in the tenant being charged a compounded daily interest on the amount that should have been withheld and remitted.
How do you know if you need to open a non-resident tax account?
If you, as a tenant, have determined that your landlord is a
non-Canadian resident you do not need to panic and
immediately open a non-resident account. This is
especially important if the tenancy agreement you signed with the
non-resident landlord is silent on addressing administrative duties
and withholding funds.
As described in the Income Tax Act, where a property manager is collecting rent on behalf of a non-resident landlord it then becomes the responsibility of that person (or company) to address the administrative aspects of rents from non-residents, not the tenants. If there is no property manager involved, and it is silent in the agreement that you, as the tenant, are responsible for the administrative details, including being required to send applicable withholdings to the CRA directly, the administrative duties would fall to the landlord.
Our experts have seen various scenarios involving non-resident landlords. Below they explain three of the most common.
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.