The CRA surprise

Perhaps you noticed the feds have started a war with non-residents. There’s n arbitrary five-year ban on residential real estate purchses in Canada. Plus non-beavers have to pay a 1% annual tax (on assessed or market value) to continue owning a house or cottage. For example, Americans with a family property here are nailed. Canadians with a seasonal home in that country get a free ride. It’s embarrassing.

Actions also have reactions. Caught in the crossfire recently have been some renters. Their story shines a bright light on a situation which has shocked many.

In short, if your landlord is a non-resident you (the tenant) are responsible for his/her taxes on your rent.

Seriously. It’s all part of the CRA’s pitbull-dog aggression battling non-compliance from offshore owners who may feel disrespected. Or, perhaps it’s just a case of stupid, capricious laws.

“My landlord has been living in Europe and I’m not sure where their tax residency is,” Peter writes. “Been renting from them for 3 years now. I sent him the email and requested a “certificate of residency” in case I get audited.  Is there anything else you’d recommend I do?  Perhaps ask that they sign a declaration that they’re responsible for any withholding taxes? I’m sure you both think this is crazy, particularly you Garth given your past leadership role of the CRA.”

Yeah, I did run the Canada Revenue Agency for a spell years ago, and never saw this lunacy.

It came to light after a 61-year-old guy (former Olympian with media smarts) who rented a swanky Montreal apartment discovered the owner had stopped paying taxes. The CRA audited and hit the tenant with a $80,000 bill, saying he was liable for six years of his LL’s debt. Why? Because the owner was a non-resident – a fact unknown to the tenant. After objecting and a ton of legal costs, the bill was reduced to $43,000. It is, as yet, unsettled. But – as you may know – nobody ever gets out of paying the CRA.

Why would a renter have to pony up an owner’s taxes? Because the law says so. Renters must report non-resident LLs to the CRA so the feds can go after what’s owing on the rent paid – or pay it themselves.

Greg rents in Waterloo. “I have read the article and gone to the link suggested by CRA to ‘inform myself’” he writes. “I am having a difficult time understanding the indemnification shield they are suggesting. My (rental) agreement informs me my landlord is aware of the implications of being a non-resident and is required to inform me if their status changes.”

This is the clause Greg references:

OREA Agreement to Lease – Residential Form 400 (2022)

16. RESIDENCY: The Landlord shall forthwith notify the Tenant in writing in the event the Landlord is, at the time of entering into this Agreement, or, becomes during the term of the tenancy, a non-resident of Canada as de”ned under the Income Tax Act, RSC 1985, c.1 (ITA) as amended from time to time, and in such event the Landlord and Tenant agree to comply with the tax withholding provisions of the ITA.

Well, it seems that is not good enough for the Revenuers.

The CRA is telling tenants if their non-resident landlord doesn’t have a Canadian property manager, they’re required to withhold a portion of rent (25%), plus fill out Form NR4. The tax guys also say tenants should conduct (and pay for) a land title search to ascertain where the owner lives, require that the LL produce a certificate of residency, and insist an indemnity clause be written into the lease agreement which shielding the renter from tax assessments and penalties.

“I have also filed my taxes for two years informing the CRA of my address, my status as a renter and what rent I pay,” says renter Greg. “Surely by now if there was an issue, the CRA would let me know. Finally, why would a non-resident landlord telling me I am indemnified change anything from the perspective of the CRA? If the LL tax liability is outstanding and the CRA can’t get to their money, how does the LL giving me indemnification suddenly turn into a reverse UNO card? Isn’t it up to the CRA to indemnify me?”

Well, that’s how the CRA rolls. You only hear when things go afoul. Obviously a tenant is never going to know if their landlord is paying taxes on time, or at all.

What to do?

Know who the LL is, where he is and request that residency certificate from him. In the lease agreement include causes requiring the owner to inform you of any residency change and, if the landlord is a non-resident, confirmation of compliance with Part XIII – non-resident withholding taxes. If there is no Canadian property manager, file Form NR4.

In a country that spends far more than it collects, nothing is simple. Or fair.

About the picture: “Here is Pearl, writes Dan, “on the beach in Port Renfrew. Regarding your recent blogs, with my right background and my current left worklife friends, I see both sides of extreme hate on my social media, actually the metrics have a struggle trying to figure out what to send me.  This AI struggle is deeply concerning becasue it appears to me social media is driving uninformed people to politics, however with a left vs right view. Right or wrong, i’m right, you are wrong.  I’m seeing more and more manipulation of the truth to drive further hate against either side, and grab the reasonable voters and drive them to the sides.  As you have mentioned it’s concerning, especially if you are a bit of a history admirer.  Thanks again for the continued information on all things financial, my net worth is climbing becasue of you and your guest bloggers.”

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