September 26, 2023
All Tax Articles

Beware of having a non-resident landlord!

In 3792391 Canada Inc. v. The King, 2023 TCC 37, a tenant had been renting a Montreal condo, and living there, since 1996.

In 2010, the tenant signed a renewal 3-year lease with the condo’s owner. The lease showed a Canadian address for the condo owner, though it also showed that she signed the lease in Italy and her email address was in the “.it” domain.  

The tenant had his company pay the rent to the owner. In 2018, after the company had paid $174,000 in rent from 2011-2016, the CRA assessed the company 25% non-resident withholding tax (over $43,000), plus interest and penalty, because the condo owner was not resident in Canada.

The company appealed to the Tax Court of Canada. The tenant testified that he had no way of knowing that the condo owner was not resident in Canada, and challenged whether indeed she was a non-resident. The court concluded that the condo owner was a resident of Italy. The Court did cancel the penalty on the grounds of “due diligence”, since the tenant had no reason to believe that withholding tax was required. But the tax was payable.  

Note that in a case like this, the Income Tax Act provided that the withholding tax paid to the CRA is considered to be a payment to the landlord. So if a tenant has overpaid the rent by paying not only the rent but the withholding tax assessed by the CRA, the tenant can sue the landlord to recover the rent.

This letter summarizes recent tax developments and tax planning opportunities from a third-party affiliate; however, we recommend that you consult with an expert before embarking on any of the suggestions contained in this blog post, which are appropriate to your own specific requirements. Please feel free to get in touch with Lee & Sharpe to discuss anything detailed above, we would be pleased to help.
Sandy J. Lee

Hello my name is Sandy Lee, I am a partner at Lee & Sharpe.

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