Tax Alert - Reducing Complexities of Land Transfer Tax

July 2017

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On July 14th 2017, the Ontario Ministry of Finance released a Consultation Document which discusses a number of proposed measures that aim to reduce the complexity associated with the administration of the Land Transfer Tax (“LTT”) as it applies to unregistered dispositions of land by certain entities.

Under the proposed approach, certain entities who acquire land in Ontario through an unregistered disposition would be classified as either Group 1 or Group 2 “Vehicles” and the application of the LTT would differ depending on which vehicle the particular entity was classified as.

Group 1 Vehicles

The following entities would be classified as Group 1 Vehicles:

  • Specified Investment Flow Through (“SIFT”) Trusts and Partnerships
  • Mutual Fund Trusts
  • Exempt Pension Trusts under Paragraph 149(1)(o) of the Federal Income Tax Act (“ITA”)

Under the proposals, Group 1 Vehicles would themselves be considered taxpayers for the purposes of the LTT. This is in contrast to the current legislation under which such entities are “looked through” for the purposes of determining the entity subject to LTT on an unregistered disposition.

Group 2 Vehicles   

The following entities would be classified as Group 2 Vehicles:

  • A “unit trust” as defined under Subsection 108(1) of the ITA or a partnership that has filed or was required to file a declaration under the Ontario Limited Partnerships Act; and
  • The vehicle has issued its investments to 50 or more arm’s length unitholders or partnerships; and 
  • The vehicle is not a Group 1 Vehicle

A Group 2 Vehicle would not be considered a taxpayer itself but would be required to collect and remit LTT on behalf of its unitholders or partners.  The Group 2 Vehicle would be required to collect the applicable LTT by withholding from amounts paid as distributions to its unitholders or partners.  Penalties would be applicable to a Group 2 Vehicle who fails to collect.

The following information is also included in the Consultation Document:

  • LTT would not apply to Unit Trades or Unit Redemptions of a Group 1 Vehicle’s units.  It would also appear that Unit Issuances would continue to remain exempt.  This would include units issued through a DRIP (Dividend Re-investment Plan)
  • A Group 1 Vehicle would be able to avail itself of the 5% de minimis exception prescribed under Section 1(2) of Ontario Regulation 70/91 which generally states that LTT is not applicable on an acquisition of a beneficial interest in land that is an acquisition of a partnership interest if the partners entitlement to share in profits of the partnership is not increased by greater than 5% on the acquisition
  • A Group 1 Vehicle would be required to report and remit LTT within 30 days of the unregistered disposition
  • A Group 2 Vehicle would be subject to quarterly reporting 

The consultation period will expire on August 28th, 2017.

Should you have questions regarding this, please contact your BDO advisor or one of our Real Estate and Construction Leaders:

Salmaan Alvi
National Real Estate & Construction Leader   

Stan Zinman
International Tax Services Leader    
Real Estate & Construction Industry Tax Lead    

 
The information in this publication is current as of July 25, 2017. 

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.