A Canadian-resident "Manager" agrees to provide rental management services to the non-resident owner (the "Owner") of an immovable located in Canada. Under the terms of the agreement, the payments to the Owner are set at 50% of the rental income from the building less commissions paid to travel agencies. Is Part XIII tax applicable to such sums actually paid by the Manager to the Owner (which are property income rather than business income to it) or to the gross rents received by the Manager on behalf of the Owner (i.e. 100% of the amounts collected from the lessees)?
Where … an amount on which an income tax is payable under Part XIII was paid to an agent for or on behalf of the non-resident person who is entitled to payment without the tax having been deducted or withheld, subsection 215(3) provides that it is then the responsibility of the agent to deduct or withhold the Part XIII tax payable in respect of the amount received on behalf of the non-resident. Since the requirements imposed by subsection 214(1) remain applicable in such a case, it follows that the amount from which the agent is required to withhold 25% is the gross amount of the rents collected by the agent for or on behalf of the non-resident. …
In order for only the amounts actually paid to the Owner to be subject to the 25% withholding, the Manager and the Owner must make an election under subsection 216(4).