Ads keep this website free for you.
TaxTips.ca does not research or endorse any product or service appearing in ads on this site.  Before making a major financial decision you  should consult a qualified professional.

Payments to Non-Residents TaxTips.ca
Canadian Tax and
Financial Information
TaxTips.ca Home

What's New

Links & Resources

Site Map

Need an accounting, tax or financial advisor? Look in our Directory.  Use above search box to easily find your topic!   Stay Connected with TaxTips.ca!

 

Home  ->  Real Estate -> Payments to Non-Residents

Buying or Renting Real Estate From a Non-Resident

Income Tax Act s. 116, 212, 215

Real Estate Purchased From a Non-Resident

Purchaser Liable if Non-Resident Does Not Pay

Renting Real Estate From a Non-Resident Landlord

Non-Resident Landlord s. 216 Election

Purchasing Residential Real Estate in BC

Purchasing Residential Real Estate in Ontario

Tax Tips

Canada Revenue Agency (CRA) Resources

Real Estate Purchased From a Non-Resident

Income Tax Act s. 116

When real estate is purchased from a non-resident of Canada, the non-resident is normally required to complete and submit a form to Canada Revenue Agency (CRA), along with a tax of 25% of the gain on the property. The rate of withholding tax is subject to any relevant tax treaty.  CRA will then provide a certificate of compliance (T2064 or T2068) to the purchaser and the vendor.

Purchaser Liable if Non-Resident Does Not Pay

Income Tax Act s. 116(5)

If the non-resident vendor does not pay this tax, the purchaser of the property will be liable.  Thus, the purchaser may withhold 25% (50% in some cases) of the cost of the property.

In a recent BC Supreme Court Case, Mao v. Liu, 2017 BCSC 226, Tony Liu Notary Corporation was sued by Mao.  Mao had been assessed $600,000 by CRA related to the sale, because the seller was a non-resident of Canada.  The Notary had handled the closing of the sale and failed to discover that the seller was a non-resident.  Thus, the 25% tax was not remitted by the vendors.  The Court found in favour of Mao.

Several factors made it seem, without doing sufficient investigation, that the vendors were residents of Canada:

bulletThe vendors had owned the property for 12 years;
bullettheir registered address was the address of the property; and
bulletthere was a history of mortgages against the property in favour of financial institutions in Canada.

Tax Tip:  When you're buying real estate, or are the agent for the purchaser, get verification that will stand up in Court that the vendor is a resident in Canada, unless it is already known that the vendor is a non-resident.

Renting Real Estate From a Non-Resident Landlord

Income Tax Act s. 212(1), s. 215(1)

A tenant is required to withhold 25% tax on rent paid to a non-resident landlord. See the Video Tax News June 2023 Life in the Tax Lane, as well as court case 3792391 Canada Inc. v. The King.

On May 17, 2024 the Hon. Marie-Claude Bibeau, Minister of National Revenue, tweeted the following:

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. This 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 does not, and will not, apply to them.

It would be more reassuring to see this statement on a government of Canada website.

For a Canadian to not withhold the Part XIII tax would be contrary to s. 215(1)(d) of the Income Tax Act, which requires a tenant to withhold tax on rent paid to a non-resident landlord. The Income Tax Audit Manual Chapter 15.0 International audit issues is the chapter that would deal with this, but that chapter is currently under review and unavailable. It has been under review for at least 2 years now.

Most Canadians are unlikely to know about the Part XIII withholding tax requirement, and if they are aware, it may be quite likely that they do not know the country of residence of their landlord. For the CRA to ignore this law seems quite reasonable, but the law still exists.

Hopefully there is a plan to change the legislation to remove this requirement for Canadian tenants.

Non-Resident Landlord Election

A landlord can elect to pay Part I tax, meaning they would report the net rental income on their personal or corporate income tax return, under s. 216 of the Income Tax Act.

November 4, 2009 Technical Interpretation 2009-0311311E5 - Withholding Tax on Rental Income includes the following statement:

Where the rental income is income from property, the non-resident will be subject to Part XIII tax under paragraph 212(1)(d) of the Act on the rents received. Subject to any relevant tax treaty, the rate of withholding tax is 25%. Alternatively, the non-resident may make an election under subsection 216(1) of the Act to file an income tax return for a particular year and pay tax under Part I of the Act on the net rental income for that year (at the income tax rates applicable to Canadian residents)

Subsection 215(6) of the Act provides that when a person fails to deduct or withhold any amount as required by section 215 of the Act, from an amount paid to a non-resident person, that person becomes liable to pay as tax under Part XIII on behalf of the non-resident person the whole of the amount that should have been deducted or withheld. Any person liable to pay an amount on behalf of a non-resident person in accordance with subsection 215(6) of the Act is entitled to recover from that person the amount so paid.

Purchasing Residential Real Estate in BC

BC Property Taxes - including BC Home Flipping Tax - even on principal residence

BC Speculation and Vacancy Tax

If you're planning to purchase property in BC on which you plan to develop a farm, see:

Farm Status in British Columbia - Understanding the Regulation

Purchasing Residential Real Estate in Ontario

Ontario Taxes on Property

Tax Tips:

Know the tax implications when buying from a non-resident.

Make sure you know whether the vendor is or is not a non-resident!

Canada Revenue Agency (CRA) Resources

The above tax applies to some other types of Canadian property besides real estate.  For more information on this topic, see Canada Revenue Agency resources:

T4058 Non-Residents and Income Tax

Non-residents disposing of certain Canadian properties

IC72-17R6 Procedures Concerning the Disposition of Taxable Canadian Property by Non-Residents of Canada - Section 116 - Purchaser's Liability

Income Tax Audit Manual Compliance Programs Branch  Chapter 15.0 International audit issues - Under review

IC77-16R4 Non-Resident Income Tax (No longer exists)

Revised: May 20, 2024

 

Copyright © 2002 Boat Harbour Investments Ltd. All Rights Reserved.  See Reproduction of information from TaxTips.ca

Facebook  | Twitter  |  See What’s New, stay connected with TaxTips.ca by RSS or Email
The information on this site is not intended to be a substitute for professional advice.  Each person's situation differs, and a professional advisor can assist you in using the information on this web site to your best advantage. 
Please see our legal disclaimer regarding the use of information on our site, and our Privacy Policy regarding information that may be collected from visitors to our site.