Do you know your landlord?
It cannot be denied that we are living in times of what feels like ever-increasing housing scarcity. Finding a safe place to live is increasingly difficult as renters and purchasers navigate obvious risks. What many potential tenants may not be aware of are the income tax obligations that may arise depending on the residency status of their landlord, as the appellant in 3792391 Canada Inc. v. The King learned the hard way.
Section 212(1)(d) of the Income Tax Act concerns rent paid to non-resident landlords, demanding a 25 percent withholding tax on gross rent paid. The responsibility to withhold and remit those payments falls with the Canadian resident taxpayer, a responsibility that many tenants may be entirely unaware of.
The consequences of not withholding that tax can be severe, with section 215(6) of the Income Tax Act holding a Canadian resident tenant liable for amounts that were not properly withheld, an amount that can (and likely will) be increased with penalties and interest.
Do you know who your landlord is? Are they resident in Canada? Are you sure?
David Siscoe thought he was sure and paid the price.
Siscoe, a Canadian resident, entered into a lease with Anjar Investments Ltd. The appellant numbered company, 3792391, of which Siscoe was a shareholder, regularly made the rent payments and neither Mr. Siscoe nor the appellant suspected that they were not withholding required remittances.
Siscoes' landlord, Sebastiana Trimarchi, had provided to him documents suggesting she had an address in Canada, the deed of sale by which she took possession of the unit listed a Montreal address, her address on the lease was located in Pincourt, Quebec.
The Appellant was surprised when he was assessed by the Canada Revenue Agency for failure to withhold and remit taxes on the rental income paid to Ms. Trimarchi, including interest and penalties.
Appealing to the Tax Court of Canada, the appellant argued that there was no reason to suspect that there were taxes that were not being properly withheld. The fact that they didn't know that Ms. Trimarchi was not a resident of Canada for tax purposes was irrelevant, there is no knowledge requirement in the provision.
Even attempts at a due diligence defense were not successful, the Court stating that neither Siscoe nor the appellant took the steps required to determine Ms. Trimarchi's residency and that they were not entitled to uncritically rely on things such as her address as listed on the lease. The appellant was ultimately found responsible for the amount owed to the Canada Revenue Agency.
This case highlights the importance for tenants to protect themselves and to act proactively. Where a tenant cannot be sure, steps need to be taken to determine their landlord's residency. Provisions can be written into leases addressing how the tax is to be withheld and remitted, or requiring notification if a landlord's residency status changes.
While currently these factors listed above are not in the standard lease agreements for Ontario, individuals looking to rent should add them as provisions independently, to ensure they are covered from similar situations arising.
In these challenging times, it may be tempting to accept what is available. Even what may appear to be the ideal landlord-tenant relationship can be fraught with challenges. and tenants should be doing their due diligence to protect themselves.
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.
