Kent Spencer
Province
CREDIT: Ric Ernst, The Province Linda Mix of the Tenants Rights Action Coalition in Vancouver says the tax law is ‘scary.’ (David) Perry
Tenants and property agents should be aware of a little-known law that allows the taxman to come after them for their landlords’ unpaid tax, say advocacy groups.
“I was dumfounded when I heard about it,” said Linda Mix of the Tenants Rights Action Coalition in Vancouver.
“It’s hard enough being a renter without something like this.”
The law came to light after a Saltspring Island tenant received a $5,000 income-tax bill due on the landlord’s rental income. The woman’s foreign landlord eventually paid the bill.
Dan McGrath of the federal tax department in Victoria said the problem of delinquent overseas landlords “goes on all the time.”
“The Income Tax Act requires overseas landlords to pay 25 per cent of their rental income to the Canada Customs and Revenue Agency,” he said.
“On $1,000 rent, tenants should send $750 to the landlord and $250 to CCRA.”
McGrath said the tax department doesn’t usually demand payment from tenants who don’t know the rules.
“The law provides for that, but in practice we don’t go that way,” he said. “We tell the tenants to pay future rents directly to us until the landlord’s debt is paid off. They’re not out of pocket.”
But he said the department is tough on professional property managers because “it’s their business to know.”
“It falls on the agent to deduct and remit the non-residential tax. If the tax isn’t paid, we can present the agent with a bill because they should have known it all along.”
Mix called the law “scary” and said tenants shouldn’t be expected to know whether the landlord is paying his taxes.
“Tenants and landlords have a hard enough time getting along without a tenant having to ask the landlord if he’s paying taxes,” Mix said.
Under B.C.’s Residential Tenancy Act, she said tenants are not allowed to withhold rents except by court order.
“At the end of the day, it’s the landlords’ taxes,” Mix said.
Landlords’ rep Lynda Pasacreta said it shows the problems with absentee landlords.
“When the landlord isn’t there, he can’t check up on the type of tenant going in, if there’s a grow-op, or fix up the place,” said Pasacreta of the B.C. Apartment Owners and Managers Association. “An absentee landlord doesn’t work in any aspect.”
David Perry of the Canadian Tax Foundation in Toronto said the system was meant to be fair to residential taxpayers.
“There is no way of collecting taxes from non-residents,” he said.
“Wouldn’t it be nice to build up a portfolio of properties and move to Fiji, collect rents and not pay taxes? If a tax wasn’t imposed, it would discriminate against Canadian taxpayers.”
Perry said the law was obscure in many circles, but common knowledge among international businessmen.
“Money market managers doing business on Wall Street will withhold a non-resident portion for the tax department before sending a cheque to New York,” he said.
McGrath said tenants can easily set up non-resident withholding payment [trust] accounts.
“All they have to do is phone us,” he said.
© Copyright 2003 The Province
