The Québec 2016-2017 Budget delivered on March 17
announced a number of important changes to the province's land
transfer duty regime.
The most important change relates to the event triggering the
exigibility of the duties. Previously, the Act respecting
duties on transfers of immovables provided that the duties
became exigible only upon the transfer's registration. In other
words, the payment of the duties could be postponed indefinitely by
not registering the transfer of the immovable. The Budget provides
that the Act will be amended so that duties will become exigible as
of the date of transfer, regardless of registration.
The Act will also require transferees to notify municipalities
of any unregistered transfers. A penalty equal to 150% of the
duties, plus interest, could be levied where the notification is
omitted. The transferee paying the duties following the
notification will not be required to pay them again if the transfer
is subsequently registered.
The second important change relates to the exemption for
transfers between natural persons and corporations of which the
natural person owns at least 90% of the full voting rights shares,
or representing 90% of the fair market value of a corporation, and
to a similar exemption applicable to transfers between
"closely-related" corporations. The Act will be amended
so that it will now be necessary for 90% of the votes of the
relevant corporation to be held by the natural person or parent
corporation. It will no longer be sufficient for the natural person
or parent corporation to own shares representing 90% of the fair
market value of the subsidiary corporation.
The third important change also relates to the above-mentioned
exemptions. Where a transfer is made by a transferor that is a
natural person to a transferee that is a corporation, or where the
parties to the transfer are closely related corporations, the Act
will be amended to introduce an obligation to maintain the
exemption condition (i.e. holding of the requisite number of votes
to qualify for the exemption) for at least 24 months following the
transfer. If the exemption condition ceases to be met at any point
during that period, the transferee will become liable for payment
of the duties that would have been payable had the exemption not
been applicable on the date on which the exemption condition ceased
to be met. The Act will also require the transferee to notify the
municipality if the exemption condition ceases to be met during the
24-month period. Failure to notify will lead to the 150% penalty.
Where the transferor is a legal person and the transferee is a
natural person, the requirement will be to maintain the exemption
condition for a minimum period of 24 months immediately preceding
In view of the above amendment, the anti-avoidance rule in
section 1129.29 of the Taxation Act will be repealed. To
apply, this rule required both an acquisition of control of a
transferee corporation within 24 months of a transfer and a
reasonable conclusion that the transfer was made in contemplation
of such acquisition of control. Under the new rules, it will no
longer be sufficient that control is not acquired, and taxpayers
will not be able to argue that the anti-avoidance rule does not
apply because the purpose test has not been met.
The changes will apply to transfers made after March 17, 2016.
The Budget does not describe any grandfathering relief for
transfers of immovables agreed to, but not closed, before that
Do not hesitate to reach out for any questions you may have with
respect to the new rules or their application to your situation. We
would be pleased to explore creative planning solutions with you
concerning the above amendments.
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