If you, as a housing provider, feel cheated and enraged by not only being denied your legal and moral right to collect rent and damage costs, not having the right to regain title to your (not the tenant’s) property (which rental contract was written by the Ontario government), and being subjected to unbearable financial strain, but also by the Landlord and Tenant Board’s (LTB) and Residential Tenancies Act’s (RTA) empowerment of residential tenants to not pay rent or damages without consequence, you may find some small consolation from looking for others way to see that the tenant pays their dues.

There are few things that are more formidable than having the Tax Man on your heels. Many tenants who exploit the short-term income advantages of not paying rent and damage costs are oblivious to the longer-term consequences. I wrote about some of these consequences in a previous email to my mailing list in which I presented a detailed letter that I send to non-rent-paying tenants.

Note: Before you proceed, please take note that I’m not an expert in the material presented in this article nor am I a licensed accountant or lawyer. I offer it only as a place to start to make informed inquiries. You must obtain expert advice before acting on any legal or financial information presented here, and you indemnify Christopher Seepe and Aztech Realty Inc. from any consequence of any kind that may arise from your use of this information. If you do not agree then please do not read any further.

Here are some additional considerations.

Is a Tenant’s Uncollected Rent a Taxable Benefit to the Tenant?

One signatory to this “Auto-Evict” petition wrote to me suggesting that a tenant who lives in a rental property and has received the benefit of living in a place but did not pay the rent may have received a “taxable benefit.” Given that rent can consume 30 to 70% of a tenant’s gross income, this can be a sizeable taxable amount.

It appears that CRA currently only considers a taxable benefit to apply where “… an employee receives an economic advantage that can be measured in money such as cash or a different type of payment like a gift certificate.”

By implication or inference then, a tenant is not an employee.

Can’t Get Answer from CRA

I tried to get a straight answer from the CRA but it explicitly does not permit inquiries by email. Calling them would (a) take forever to get through, and (b) the service representative almost certainly would not know the answer or otherwise be unwilling to provide an “interpretation.”

I attempted to file a report on behalf of ALL affected housing providers but the report only permits reporting individuals. Still, I planted a seed that CRA should investigate all LTB Orders issued for non-payment of rent. I received the following confirmation:

Your lead information has been submitted. Date: 2024 03 01 Your lead number is 5553441.

Rent Arrears has Huge Impact on Government Tax Revenue

Notwithstanding the above, there should be an exception. Canadian taxpayers are footing the tax bill for the hundreds of millions of dollars of lost provincial and federal government tax revenue:

• Tenants receiving the benefit of “free” housing are not paying any tax on that benefit while employees must pay tax, even if they receive a gift card
• Housing providers annually write off $1 billion of uncollected rental income as an expense, which reduces their taxable income … which means less tax revenue collected by the government
• The lost revenue significantly impacts the ability to maintain property standards
• Contractor work and jobs decrease

Housing Provider can Claim Rental Loss Against Taxable Income

As a housing provider, you can deduct lost rental income arising from uncollected rent as an expense against other income you have earned as a housing provider. For the deduction to be eligible:

• The rent must have been included in your income, either in the current year or a previous tax year
• Your tenant owed you the rent at the end of the current tax year
• You haven’t been able to collect it by the end of the current tax year

Tenants Can’t Claim Income Tax Deduction for Unpaid Rent

Only rent that the housing provider has claimed on their taxes is eligible for a tenant to claim as a deduction. You should never issue a rent receipt to a tenant for any unpaid portion of the rent.

Unhappily, the CRA doesn’t generally ask for a residential rent receipt as proof of the rent expense unless its algorithm detects an anomaly, such as the total annual rent paid is significantly higher than the amount that the tenant might be able to reasonably afford with the tenant’s report gross income (however CRA determines that, and without breaching the Human Rights Code).

Therefore, a tenant with rent arrears could attempt to claim this sizeable expense deduction. The worst that usually happens is CRA asks for a rent receipt. If the tenant can’t provide it, CRA simply disallows the expense and adjusts the tenant’s income, resulting in a higher tax amount.

Is a Tenant in Breach of the Income Tax Act for Claiming Rent They Didn’t Pay?

If a tenant knowingly claims the rent deduction on their tax return but didn’t actually pay the rent, then the tenant might be in breach of Canada’s Income Tax Act (1985). This is NOT the same as making an innocent tax deduction claim and having it disallowed. Knowingly making a claim for an expense that the tenant didn’t incur is tax fraud. According to the CRA website, “… tax fraud [is] falsifying records and claims, purposely not reporting income, inflating expenses [or] claiming a fraudulent refund or benefit.”

Report Tenant’s Unpaid Rent and “Fees for Keys” to CRA 

Obviously, a housing provider won’t know if a non-rent-paying tenant has claimed the rent expense as an income tax deduction or the tenant didn't report the “fees for keys” payment as income but the CRA operates an anonymous tips online portal for “Reporting suspected tax or benefit cheating in Canada” here: https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/suspected-tax-cheating-in-canada-overview.html

An LTB Order should be proof positive that a tenant owes you rent but other types of evidence may also be sufficient for the CRA to begin an investigation.

If you paid a fee for a tenant to move out of a rental home, then have the tenant to sign a receipt that you prepared in advance. You should also document the entire transaction with a detailed N11 form. If the tenant won’t sign the receipt, then pay the fee by trackable means such as an Interac e-transfer or wire transfer. If you paid by cheque or certified cheque, photocopy both sides before turning over the cheque. Ask your bank if they’ll either return the cheque to you after it has been processed or they can provide a digital copy of the cheque. This may cost you a fee but it makes your proof for the CRA report much more compelling.

The website reporting form can be onerous but the more information you provide, the more likely it is that your report will be reviewed and the tenant’s claim investigated. You should consider making the point on the website report that the tenant could not have unknowingly made the expense deduction claim.

Arrest for Fraud Under $5,000

The significant difference between theft and fraud cases is that the Crown must prove fraud beyond a reasonable doubt. To obtain a fraud conviction, the prosecution must prove that the defendant committed an intentional act to defraud. This might be the case where a tenant publicly declares on social media or perhaps at a physical rally that tenants don’t need to pay rent or that tenants can live “rent-free” for a year and never pay.

Fraud also requires someone to have suffered a loss.

Many people, especially first-time offenders, are under the mistaken impression that all information related to being charged with fraud under $5,000 is private. Unless there’s a specific court order for a publication ban, there’s no privacy whatsoever.

An allegation of fraud under $5,000 by the police lists the charges along with a fingerprinting and mugshot date and a court date, but contains no information about the potential consequences. Some alleged offenders are held for a bail hearing before being released. Sometimes the police will show up at the accused’s home or workplace. For a basic fraud under $5,000 charge, the accused can face up to two years in prison, probation, and have a permanent criminal record.

The police and media can release information to the public if they wish, including the accused’s name, age, picture, hometown, or more, even as a first-time offender. The courts are open to the public in Canada. Even if the information is not released, any journalist or reporter can attend court and write a story about it.

Fraud valued at over $5,000 can result in a maximum prison sentence of 14 years.

Report LTB Orders to Openroom.ca

Despite an Ontario Superior Court rendering its decision on April 27, 2018 2018 04 27 in the case of Toronto Star v. AG Ontario, 2018 ONSC 2586) that “… the openness of the system, and not the privacy or other concerns of law enforcement, regulators, or innocent parties … takes primacy in this balance,” the LTB and CANLII, the LTB's service provider responsible for publishing all LTB orders, have collectively failed to publicly publish tens, if not hundreds, of thousands, of tribunal orders.

After losing more than $35,000 from unpaid rent, the founders of Openroom.ca built a database that permits tenants and housing providers to search for LTB orders, currently for free.

You should not only search Openroom.ca and CANLII whenever you have a new tenant applicant to see if an existing order has been issued against them, but you should also upload to Openroom every LTB order you have ever received for non-rent-payment and damage costs.

Tenants Can’t Claim Trillium Tax Credit for Unpaid Rent

Typically, lower-to-mid-income tenants can claim the Ontario Energy and Property Tax Credit (OEPTC) that is part of the Ontario Trillium Benefit (OTB). The tax credit is based on a tenant’s adjusted net family income. A tenant may qualify for the energy portion, the property tax portion, or both. Though not explicitly claiming rent on taxes in Ontario as an expense, rent paid throughout the year is one aspect used to help calculate this benefit.

You might let the non-rent-paying tenant know that they will not be able to claim this tax benefit since rent payments that are not declared by a housing provider on their income tax are not eligible.

Looking for a Lawyer or Law Firm

If the Office of the Premier or the Attorney General’s office doesn’t reply by the petition’s deadline date or does but not in a manner that is satisfactory to meet the demands of the petition, we are considering pursuing a class action against the province, tentatively estimated between $1 and 3.2 billion.

If you know of a lawyer or law firm that has been successful in class actions against the government, please either send me (the petitioner) their contact details or forward my name and contact details to them and ask them to contact me (Chris Seepe, 416-525-1558, cseepe@aztechrealty.com

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