CRA Confirms No Tenant Liability for Foreign-Owned Property Income Taxes
Earlier this year, a case was decided that had tenants trying to find out if they lived in a foreign-owned property or not when the Canada Revenue Agency found a tenant liable for paying withholding taxes that their landlord had not remitted. Recently, the CRA has stated that it will not be enforcing the law going forward and the legislation will be revisited.
It led to significant confusion, with the fact that a tenant could still be evicted under Ontario law if they withheld any portion of rent – even if it was done to pay these taxes. However, with foreign ownership only making up around 2% of properties in Ontario, with not all of those even being landlords, the law only applies to a very small portion of tenants. If we add the 2023 foreign buyer ban of residential properties into the equation, that number is not likely to rise.
Confusion was based on actual law
The case was based on the Income Tax Act, which states that tenants are responsible for paying the landlord’s income taxes on foreign-owned properties if they are not remitted by the landlord. No such law exists for domestically-owned properties.
What to do if your tenant has withheld rent
With this clarification, the government has signaled an end to any confusion that tenants may have had. If your tenant has withheld rent, immediately file a complaint with the Landlord and Tenant Board if they don’t pay you the arrears within a short time frame, such as two weeks.
This complaint can be rescinded once the situation is resolved, and does not affect your tenant’s credit or anything related once it has been filed. While it may seem heavy-handed, the backlogs at the LTB are high and it’s best to get the complaint into the system in case the situation is not resolved to your satisfaction.
What foreign landlords need to do
There is no change to what foreign landlords need to do in order to remit taxes on the property. They are required to pay 25% of the rental income from the property. You are also able to write off expenses for maintenance and repair of the rental property against this income.
If you own property in Canada and are living abroad, you should absolutely be retaining the services of an accountant to manage your rental income within Canada to ensure you are maximizing your income and filing your taxes properly.
Highgate can help you manage your property
Taxes are not the only issue that a non-Canadian must navigate if they own property they are renting out in Canada. The day-to-day business of maintenance, rent collection, and dealing with tenant requests is not something that can be comfortably managed from abroad.
That’s where we come in – we can do all of this for you, for much less than you may think. Tenant screening is particularly important to ensuring that you are renting to responsible tenants, and that is something best done in-person by a trusted professional.
We have been managing properties across the Greater Toronto Area and surrounding cities for a very long time, with real estate and property management being our family business for generations. We can give you peace of mind from afar that your property is being managed correctly.
