Individual tenants and Part XIII tax

In 3792391 Canada Inc. v R, 2023 TCC 37 (informal procedure), the Canadian tenant of a residential unit paid rent to a resident of Italy for six years without remitting tax under Part XIII of the Income Tax Act (Canada). The tenant was found liable for the unremitted tax plus penalties for the failure to remit.

On May 17, 2024, the Minister of National Revenue tweeted the following in response:

I want to reassure Canadians that the Canada Revenue Agency does not intend to collect any portion of any non-resident landlords’ unpaid taxes from individual tenants. It is incorrect to state otherwise.

The recent case at the Tax Court of Canada (3792391 Canada Inc. v. The King) was an extremely rare situation. The law has existed for nearly a century, and there is not a single instance of an assessment made to an individual tenant in the last decade.

The CRA does not expect individual tenants to withhold 25% of the rent from their landlords. I am working with my colleague, the Minister of Finance, to provide absolute clarity on the law and to ensure that tenants have the certainty they need and deserve, but I can assure Canadians that it is not, and will not, apply to them.

That’s not the law, and it was absolutely correct to state otherwise, but ok. The law needs to be “clarified” (read “amended”) only because it is politically unpalatable—not to mention unfair—to put individual tenants in this position.

Postscript 2024 06 27: At the 2024 STEP Roundtable, in response to Q13, the CRA stated that a tenant must withhold Part XIII tax from rent paid to a non-resident trust that is deemed to be resident in Canada under ITA section 94 (which means that it is not subject to Part XIII tax). Nothing was said about an exception for individuals. LOL.

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