Yesterday, the Ontario Government enacted amendments to the
"de minimis" exemption contained in the
regulations to the Ontario Land Transfer Tax Act.
For Ontario land transfer tax purposes, a partner of a
partnership that owns real estate in Ontario generally is treated
as having a direct beneficial interest in the partnership's
real estate. Accordingly, a transfer of an interest in a
partnership that owns Ontario real estate generally is subject to
Ontario land transfer tax unless the de minimis exemption
applies. Pursuant to the de minimis exemption, transfers
of partnership interests were exempt from land transfer tax where
the person acquiring the partnership interest did not, within a
fiscal year, increase its interest in the partnership by more than
5%. Before yesterday's amendment, it was generally considered
that the 5% test was determined using a "look through"
approach. That is, if Partnership A acquired an interest in
Partnership B, the exemption would be available if a partner of
Partnership A indirectly acquired less than a 5% interest in
Partnership B. Rulings were previously provided confirming this
Yesterday's amendments, which are described by the Ontario
Government as "clarifying", narrow the scope of the
de minimis exemption such that it no longer applies where
the acquiror of the partnership interest is another partnership or
trust (including a REIT). We anticipate that the amendments will
give rise to anomalous and unexpected results. For example, the
de minimis exemption does not apply even where a
partnership or a trust acquires less than a 5% interest in a
The amendments can affect a broad range of transactions,
including public and private real estate structures. Of particular
importance, the amendments are stated to be effective retroactively
to transfers of partnership interests that occurred on or after
July 19, 1989. Notably, however, the Ontario Government has stated
that a person who previously received a ruling relating to an
acquisition of a partnership interest will generally be entitled to
continue to rely on that ruling. We are continuing to consider and
assess the ramifications and practical implications of this
amendment. Should you have any questions or comments about the
amendments to the de minimis exemption, please contact any
member of our Tax Group or Commercial Real Estate Group.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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