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Published: June 18, 2024


The Tax Court of Canada in 3792391 Canada Inc. v The King, 2023 TCC 37, found the tenant to be liable for a failure to withhold and remit tax on rental payments made to the tenant’s non-resident landlord. The Honourable Justice St-Hilaire found that despite the tenant having no knowledge that the landlord was a non-resident, the tenant was still liable for the failure to withhold tax from rental payments made to the non-resident landlord.

What Is Part XIII Withholding Tax?

Part XIII of the Income Tax Act, RSC, 1985, c 1 (5th Supp) imposes a statutory scheme that imposes tax on non-residents who receive property income from Canadian residents. Since the non-residents are not located within Canada, the Act requires the Canadian residents to withhold a portion of the payment made to the non-resident, instead remitting that amount to the Canada Revenue Agency (“CRA”) as tax which is owed by the non-resident.

The amount withheld and remitted by Canadian residents when making payments to non-residents ensures that the non-residents will comply with Canadian tax laws. Withholding tax guarantees non-resident compliance because non-residents must properly file a tax return in order to reclaim any tax withheld that goes beyond what the non-resident owed for that calendar year.

For non-resident landlords, paragraph 212(1)(d) imposes a 25% withholding tax on the gross amount of rent received from a tenant for the right to use any property in Canada owned by the non-resident landlord.  Non-residents may choose to make an election under section 216, allowing for the 25% withholding tax to instead apply on the net amount of income received from properties in Canada. The section 216 election means that expenses incurred in maintaining the property will be deducted in calculating the tax owed for a given year.

Subsection 215(6) places the burden on the tenant to collect and remit this tax to the CRA, as failure to do so will result in the tenant being liable for that tax, plus the resulting penalties and interest for failing to remit. Since paragraph 212(1)(d) sets the standard withholding rate at 25%, this means that if you owe $1000 a month in rent, you should pay $750 to your landlord and remit $250 to the CRA. However, this rate may be reduced if there is a tax treaty between Canada and the non-resident’s country of residence.

Withholding On Net Rental Income (Form NR6)

If as a landlord you elect under section 216, you can elect to have tax withheld on your net rental income instead of the gross amount.

To have non-resident tax withheld on your net rental income, you (or each non-resident who is a member of a partnership) and your agent have to complete Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real or Immovable Property or Receiving a Timber Royalty, and send it to the CRA for approval.

3792391 Canada Inc. v The King

In the case of 3792391 Canada Inc., David Siscoe was a shareholder of 3792391 Canada Inc, the company which operates Siscoe Gym. David Siscoe entered into a lease agreement with the property owner Anjar Investments Ltd. (“Anjar”) in 1996. Later, in 2006, without informing David Siscoe or 3792391 Canada Ice., Anjar sold the property to Sebastiana Trimarchi.

In 2010, 3792391 Canada Inc. entered a new three-year lease for the property with Sebastiana. 3792391 Canada Inc. made rental payments to Sebastiana on behalf of Siscoe from 2011 to 2016, without withholding or remitting any Part XIII tax. Unbeknownst to Siscoe or 3792391 Canada Inc., Sebastiana was a non-resident of Canada, meaning that the occupying tenant was required to withhold and remit Part XIII tax from the rental payments being sent to Sebastiana.

The Minister of National Revenue assessed 3792391 Canada Inc. for failure to withhold and remit Part XIII tax on the rent that 3792391 Canada In. paid to Sebastiana, plus interest and penalties that resulted from that failure to remit. This was despite the fact that David Siscoe did not know that Sebastiana was a non-resident for tax purposes.

David Siscoe argued that knowledge is a requirement for the liability imposed under section 215(6) to apply. The Tax Court of Canada found that there is no such knowledge requirement for section 215(6) to apply, and that the three requirements are:

  1. a resident of Canada has failed to withhold and remit tax;
  2. that tax is Part XIII tax; and
  3. an amount was paid to a non-resident.

The Tax Court further explains that since section 215(6) is a charging provision, and not a penalty provision, a Canadian resident required to remit under section 215(6) is not entitled to claim a due diligence defense.

The Tax Court found that David Siscoe and 3792391 Canada Inc. were clearly residents of Canada, and paying rent to Sebastiana, meaning that since Sebastiana was a non-resident, 3792391 Canada Inc. was liable under subsection 215(6). This means that the Canadian tenant was held liable for both the unpaid tax amount, and the interest and penalties resulting from the failure to remit.

The Impact Of No Knowledge Requirement

The Tax Court determining that there is no knowledge requirement for a tenant to be held liable, solidifies the obligation upon tenants to find out if the property is owned by a Canadian resident. If tenants becomes aware that the rent payments previously made were to a non-resident, it is important to consult a knowledgeable income tax lawyer to ensure that all compliance obligations are met.

Pro Tax Tips – Do Your Due Diligence!

As the Tax Court of Canada made it clear in 3792391 Canada Inc. v The King that knowledge is not required to be liable under subsection 215(6). If you or your business are about to enter into a new lease, research and investigate the tax residence status of your landlord or lessor to determine if your landlord is a non-resident. If your landlord is a non-resident, find out whether they have made an election under section 216, and inquire about the implications of signing a lease with a non-resident by consulting with a top Canadian tax lawyer.

If you discover that your current landlord is a non-resident, you should consult with a Canadian tax lawyer about your withholding obligations and penalties that could apply to you.

If you are facing CRA tax audits regarding a failure to remit withholding tax on your rent, you should engage with one of our expert Canadian tax lawyers. Our knowledgeable Canadian tax lawyers can provide legal tax advice and assist you with fighting unreasonable CRA decisions.


How Do I Know If I Can Be Held Liable For Withholding Tax On My Rent?

If you are a Canadian resident and pay rent to a non-resident, you may have to withhold and remit a portion of your rent payments to the CRA. To find out if your landlord is a non-resident, you can ask your landlord for a “certificate of residence” from the CRA. Additionally, watch out for red-flags such as: a foreign address or phone number, insisting on communicating at odd hours (possibly aligning with a different time zone), requests to pay rent to a foreign bank account or to someone other than your landlord, and the persistent use of local representative in their stead.

How Much Withholding Tax Do I Have To Pay If My Landlord Is A Non-Resident?

The standard withholding rate is 25%, meaning that if you owe $1000 a month in rent, you should pay $750 to your landlord and remit $250 to the CRA. However, this rate may be reduced if there is a tax treaty between Canada and the non-resident’s country of residence. It is best to consult with a knowledgeable Canadian tax lawyer to understand how much you should be withholding based on your situation.

How Do I Remit The Withholding Tax To The CRA?

To remit the withholding tax, you must complete form NR76 and send it along with the tax payment to the CRA. Payment can be made online, through mail, or through partnered Canadian Financial institutions.


This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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