If I’m reading this right, all Canadian renters should start withholding 25% or more of rent in order to protect themselves from this liability. Here’s why:
Not knowing a landlord is a non-resident is not considered a valid excuse.
If that’s true, then it appears a tenant is legally obligated to assume a landlord is a non-resident in the absence of proof to the contrary. And since this is a legal requirement and liability is on tenants, the minimum proof tenants accept should be sufficient to prove that status to the court (or at minimum, to release the tenant from liability).
My first question is: does the Canada Revenue Agency, or any Canadian government agency, for that matter, enable tenant to easily determine the residency status of their landlords for a given month? The article states determining a landlord’s tax residency is difficult, so I must assume it does not.
Ron Usher, long-time lawyer and general counsel for The Society of Notaries Public and visiting professor at Simon Fraser University … [said] “it’s breathtakingly difficult” to figure out if someone is a resident or non-resident.
“We’re talking about tax residency, not physical residency. They could be in San Diego, but they really are a tax resident, so there’s this complication.”
Lawyer Michael Drouillard, … vice chair of Landlord BC and specialist in tenancy law, … [suggests that] To protect themselves, tenants could start asking for statutory declarations from their landlords, attesting to their tax residency status … But the landlord could move out of the country and their status changes, and the tenant doesn’t know.
Would these statutory declarations be sufficient if they were found to be fraudulent? I’m no lawyer, but my guess would be that, given the precedent here, they would not release the tenant from liability to the CRA.
The tenant can only be relieved of this liability if a law / tax code provides that relief or if the CRA provides it. Therefore, in the absence of a procedure that a tenant can follow, the tenant would need to submit the statutory declarations to the CRA and receive confirmation that the CRA accepts them as genuine and further, that if they are found to be fraudulent, the tenant will nonetheless not be held liable.
This would also be true in situations where a property manager who ensures the withholding is handled properly is part of the equation. If the property manager were to improperly withhold these funds, i.e., by embezzling them and then leaving the country, would the tenant ultimately be liable to the CRA? As a tenant, the assumption must be yes until provided assurances by the CRA to the contrary.
As such, it appears that, to account for this liability, all tenants in Canada should start withholding 25% of rent until the CRA releases them from liability for these withholdings. Tenants who have been renting a property for multiple years and who have not received documentation sufficient to eliminate this liability should withhold more than 25% rent - up to 100% - until they have as much withheld as they could possibly be liable for. Of course, once relieved of this liability, the tenant must remit those withheld funds immediately. It’s unfortunate that the CRA has made it so difficult to be certain that you’ve been relieved of this liability, though - I believe it would require a statement by CRA to this effect. E.g., the tenant might be provided proof (verified by the CRA) that withholdings are not necessary or that they have been received for a given year.
To be clear, the portion of rent the tenant withholds is not in addition to rent paid, but is instead of that rent paid, as this liability is first by the landlord. The tenant is simply doing this to protect the landlord and themselves. It is a legal requirement, after all.
I don’t believe an escrow account is required, but tenants should confirm that themselves. My recommendation would be to store the funds in a dedicated high interest savings account.
Also, unless provided assurances from the CRA to the contrary, a tenant would need to resume withholding rent every year. Tax residency status can change on a yearly basis, after all. That’s assuming residency status is determined in advance - if it’s determined after the year is finished, then tenants would be best advised to always withhold 25% of rent and to only remit those funds once they receive confirmation that their liability has been eliminated.
If I’m reading this right, all Canadian renters should start withholding 25% or more of rent in order to protect themselves from this liability. Here’s why:
If that’s true, then it appears a tenant is legally obligated to assume a landlord is a non-resident in the absence of proof to the contrary. And since this is a legal requirement and liability is on tenants, the minimum proof tenants accept should be sufficient to prove that status to the court (or at minimum, to release the tenant from liability).
My first question is: does the Canada Revenue Agency, or any Canadian government agency, for that matter, enable tenant to easily determine the residency status of their landlords for a given month? The article states determining a landlord’s tax residency is difficult, so I must assume it does not.
Would these statutory declarations be sufficient if they were found to be fraudulent? I’m no lawyer, but my guess would be that, given the precedent here, they would not release the tenant from liability to the CRA.
The tenant can only be relieved of this liability if a law / tax code provides that relief or if the CRA provides it. Therefore, in the absence of a procedure that a tenant can follow, the tenant would need to submit the statutory declarations to the CRA and receive confirmation that the CRA accepts them as genuine and further, that if they are found to be fraudulent, the tenant will nonetheless not be held liable.
This would also be true in situations where a property manager who ensures the withholding is handled properly is part of the equation. If the property manager were to improperly withhold these funds, i.e., by embezzling them and then leaving the country, would the tenant ultimately be liable to the CRA? As a tenant, the assumption must be yes until provided assurances by the CRA to the contrary.
As such, it appears that, to account for this liability, all tenants in Canada should start withholding 25% of rent until the CRA releases them from liability for these withholdings. Tenants who have been renting a property for multiple years and who have not received documentation sufficient to eliminate this liability should withhold more than 25% rent - up to 100% - until they have as much withheld as they could possibly be liable for. Of course, once relieved of this liability, the tenant must remit those withheld funds immediately. It’s unfortunate that the CRA has made it so difficult to be certain that you’ve been relieved of this liability, though - I believe it would require a statement by CRA to this effect. E.g., the tenant might be provided proof (verified by the CRA) that withholdings are not necessary or that they have been received for a given year.
To be clear, the portion of rent the tenant withholds is not in addition to rent paid, but is instead of that rent paid, as this liability is first by the landlord. The tenant is simply doing this to protect the landlord and themselves. It is a legal requirement, after all.
I don’t believe an escrow account is required, but tenants should confirm that themselves. My recommendation would be to store the funds in a dedicated high interest savings account.
Also, unless provided assurances from the CRA to the contrary, a tenant would need to resume withholding rent every year. Tax residency status can change on a yearly basis, after all. That’s assuming residency status is determined in advance - if it’s determined after the year is finished, then tenants would be best advised to always withhold 25% of rent and to only remit those funds once they receive confirmation that their liability has been eliminated.