As we noted last month, the government of British Columbia is moving to require disclosure of beneficial owners of real property in the province. There have been two recent developments of note.
First, the comment period in respect of the proposed legislation has been extended to September 19, 2018. Readers of our previous note will recall that this draft law – known as the Land Owner Transparency Act or LOTA – would establish a public register of beneficial ownership of land in the province. Our key contacts in the Real Estate group at Dentons remain able and willing to provide further guidance on this matter and/or discuss submitting comments on the draft law.
Second, a new regulation under the Property Transfer Tax Act has been enacted, which will require certain corporations and trusts that acquire real estate to identify their beneficial owners in the property transfer tax return. This is separate from the proposed disclosure requirements set out in the LOTA, and will come into effect independent of the extension of the LOTA comment period noted above. Among other distinctions, the information required by the new Information Collection Regulation (ICR) will generally not be publicly accessible and, unlike the LOTA, the ICR does not apply to transfers of beneficial ownership with no associated legal transfer.1
The ICR is aimed principally at "relevant corporations" and "relevant trusts", which terms have similar meanings as set out in the LOTA. To recap, most corporations that are neither public nor affiliated with a government will be relevant corporations. Most non-charitable trusts that are not creatures of statute (such as a real estate investment trust under the Income Tax Act) will be relevant trusts.2
Effective date and scope of the ICR
The ICR takes effect on September 17, 2018, so it will apply to transfers registered on or after that date. The property transfer tax return form is expected to be amended prior to that time to allow for the inclusion of the information required by the ICR. Pre-existing interests in real property do not need to be reported under the ICR.
Reporting requirements under the ICR
A relevant corporation that acquires real estate in British Columbia will have to provide information about any "corporate interest holder", specifically the name, contact information, date of birth, citizenship or residency, and social insurance number or equivalent for such individual. The meaning of "corporate interest holder" is the same as in the LOTA, and is focused on individuals who have a significant level of control over the corporation, such as 25 percent shareholders or those able to appoint a majority of the directors. As an anti-avoidance measure, the same reporting requirement will apply to a relevant corporation that has a beneficial interest in real estate acquired by a trustee.
When a trustee of a relevant trust acquires real property, each beneficiary of the trust will have to be identified with the information (name, date of birth, etc.) noted above in respect of corporate interest holders. If any beneficiary of the trust is a corporation, each director must be identified in the same manner.
Level of diligence required under the ICR
The ICR imposes a degree of diligence on corporate administrators and trustees to obtain information about its beneficial owners. They must make "every reasonable effort" to do so and, if unsuccessful, provide a description of such efforts in the property transfer tax return.3
Other key elements of the ICR
Partnerships and public companies also have new obligations under the ICR. Specifically, any partnership property (as defined by the Partnership Act) must be identified as such, and any public company that acquires real estate must be named, in each case on the applicable property transfer tax return.
No change to tax regime, for now...
The ICR will not impact the tax payable in respect of a transfer of British Columbia real estate. However, in light of the Government's stated intention to "make sure people are paying their share" in this respect, it seems that extending the property transfer tax such that it captures transfers of beneficial ownership – as well as transfers of legal title that are currently subject to the tax – is a possible subsequent step.
1 For example, the sale of a corporation that owns real estate in British Columbia would trigger a reporting requirement under the LOTA, but not under the ICR.
2 Notably, the new reporting rules do not apply to "bare trusts", due to the existence of similar reporting requirements for bare trusts in the Property Transfer Tax Act (section 12.13(5)), as a result of amendments in 2016 and earlier this year. As such, the ICR can be seen as an extension of the reporting requirements currently applicable only to bare trusts.
3 The LOTA requires the applicable persons to make "reasonable efforts" to obtain beneficial ownership information, among other things. The slight contrast in wording ("every reasonable effort" v. "reasonable efforts") is notable, but unlikely to have any significantly different meaning.
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