Over the last few years, there has been an increase in the number of residences in Canada, including single-family dwellings, townhomes and condominiums, that are owned by investors instead of owned by their occupants. And, despite recent controls to limit access to the Canadian housing supply to non-resident owners, many are owned by non-resident investors. These situations may have arisen incidentally, such as when the owner moves to another country and decides to rent their Canadian home instead of selling it, or purposefully, such as when a non-resident investor is seeking investment opportunities and buys a property in Canada to rent and for capital appreciation.
Landlords
These non-resident investors could be individuals, corporations, or other non-resident entities with varying levels of sophistication as an international investor.
When the landlord is not a resident of Canada, they are subject to Canadian income tax rules that generally will tax the gross rent from the properties, or the net rent if the proper procedures are followed. The landlord’s final obligation is to pay either 25% of the gross rent or elect to pay regular Canadian tax rates.
Unlike some other types of income that arises in one country to an owner resident in another country, rent from real property is generally not exempt from Canadian tax under an income tax treaty.
Tenants
Where the owner is not resident in Canada, the Canadian tax rules also impose an obligation on the tenant to withhold the appropriate amount of tax and remit it to the Canada Revenue Agency (CRA). The remittance of tax is due on a periodic basis with each payment of rent, and at the end of the year, an annual information return is required to be filed to report rent paid and taxes withheld and remitted. If the tax is not remitted, the Canadian renter is liable to pay the withholding tax that should have been remitted to the CRA. They could then try to recover this tax from the non-resident landlord.
A recent court case focused on this issue, where it appears that the Canadian renter was not aware that the landlord was a non-resident of Canada for income tax purposes. In this case, it was determined that not knowing that the owner was a non-resident was not considered a sufficient defence for the tenant, and they were held liable for the tax that was supposed to be withheld and remitted.
Proposed relief for certain tenants
In what seems to be a direct response to this court case as well as in response to some articles about the court case in the financial press, the Minister of National Revenue made a statement in a tweet on the platform X. In those comments she stated unequivocally that the CRA does not intend to collect any portion of any non-resident landlords’ unpaid taxes from individual tenants, that the court case referred to above was an extremely rare situation, and that she was working with the Minister of Finance to provide clarity on the law.
Following this statement, a change to the law was proposed in August 2024, to be effective August 12, 2024. Under this proposed rule, there will be no obligation on an individual (other than a trust) who is paying rent, for a residential property where an individual resides, to withhold and remit non-resident income taxes with respect to that rent.
This proposed change would provide relief to tenants who are renting their place of residence in Canada and are either unaware of their landlord’s non-residence status or unaware of their potential tax obligations where they pay rent to a non-resident property owner.
Related to this change, the onus would be on the non-resident landlord to remit the appropriate amount of tax with each rental payment and to file a statement of taxes remitted at the end of the year. Alternatively, the landlord may engage an agent in Canada who collects the rent and remits the non-resident withholding tax on their behalf.
Obligations of other tenants
The proposed change only refers to the obligations of Canadian renters who are individuals with respect to a residential property where an individual resides. It does not provide relief to individuals with respect to rent paid for other reasons, such as commercial premises, or to renters who are corporations, trusts or partnerships.
How BDO can help
If you are a non-resident property owner or a Canadian resident renting a property from a non-resident, BDO can help you to determine your income tax obligations relating to renting the Canadian property.
The information in this publication is current as of October 10, 2024.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.