The information known to the taxpayer was limited to an Italian telephone number on the lease document (with a Canadian number), the landlord’s email address ending with “.it” rather than “.ca” or “.com” and some Italian writing at the bottom of an email. The taxpayer argued that he did not know that the landlord was a non-resident, and that a due diligence defence should apply.

Taxpayer loses
The Court first noted that a non-resident is subject to a 25% flat tax on gross rent received on Canadian property. The Canadian resident paying the rent is required to withhold and remit this tax and is liable for it if this is not done. Penalties and interest on this amount also apply.

The Court then noted that the withholding requirement exists regardless of whether or not the taxpayer knows that the landlord is non-resident. Further, there is no due diligence defence in respect of the tax withholding. As such, the taxpayer was liable for the tax not withheld.

The Court stated that a due diligence defence could apply to penalties and interest. However, the taxpayer provided no evidence of any efforts to confirm the landlord’s residency. The absence of any reason to question the landlord’s residency was insufficient – due diligence requires taking positive steps to ensure compliance.