Earlier this year, a story that captured the attention of Canadians involved a tenant being assessed by the Canada Revenue Agency (CRA) for failing to withhold 25% of their rent payments to a non-resident landlord. This situation arose because the tenant was unaware that their landlord was a non-resident of Canada. The tenant had even inquired about the landlord’s residency status, only to be met with threats of eviction.
This left many Canadians wondering if they are required to withhold 25% of their rent and send it to CRA, and what happens where they do not know their landlord is a non-resident, or if that information is not shared with them.
Income Tax Act Rules
This incident highlighted a significant gap in the tax legislation, namely, section 215 of the Income Tac Act (ITA) which requires tenants to withhold and remit 25% of the rent to the CRA if the landlord is a non-resident. This requirement is regardless of whether the tenant has knowledge of the landlord’s status. The unfairness of the situation drew public outcry and prompted the Minister of National Revenue to commit to addressing the issue.
CRA Response
In response to these concerns, the government has included a provision in the Draft Legislation on Technical Amendments that directly addresses this problem. The amendment to Section 215 of the ITA introduces a new exception for residential tenants, as outlined in the proposed subsection 215(1.2).
Basically, the amendment means that if you are a tenant renting a place to live from a landlord who is not a resident of Canada, you are no longer required to hold back 25% of your rent for taxes.
Conclusion
For tenants, this legislative amendment provides much-needed clarity and relief. It acknowledges the difficulties they face in obtaining information from landlords and ensures that they are not unfairly penalized for circumstances beyond their control.
However, it’s essential for tenants to remain vigilant and seek legal or tax advice if they suspect their landlord may be a non-resident, as the specifics of each situation can vary.
We expect that the draft legislation will become law, but please keep in mind it is only a draft as of the date of this blog.
If you have questions or concerns about how this new provision might affect you can contact us here.
SpenceDrake Tax Law – Tax Lawyers
Disclaimer
Each article/blog post is only meant to provide general information. It is posted on a specific date. Laws and rules change. Please know that it may be out of date. It is not meant to provide legal advice, and it does not provide legal advice. It cannot be relied on. Every tax situation is unique, and that may mean situations differ from this article/blog. If you have legal questions, please consult a lawyer.