In its 2016-2017 budget (Budget) unveiled on March 17, 2016, Quebec's Minister of Finance (Minister) announced a series of measures that will significantly amend the system of duties applicable to transfers of immovables located in the province of Quebec. While the legislation underlying the amendments was not included in the Budget documents, the proposals will apply to transfers of immovables made after March 17, 2016.
The Act Respecting Duties on Transfers of Immovables (Quebec) stipulates that all municipalities must collect duties on the transfer of immovables within their territory. Except where certain exemptions provided for in the law apply, the transferee or transferees of the immovable must pay a transfer duty. The amount of the transfer duty is established according to the basis of imposition of the transfer duty, as defined in the law.
The proposals announced in the Budget address:
- The time at which the transfer duty becomes payable
- The rules applicable to certain exemptions and
- Situations involving closely related legal persons, namely companies
The measures are not a complete overhaul of the currently available exemptions, but are seemingly targeted at certain schemes. Considering that legal entities other than companies such as partnerships and trusts are customarily and legitimately chosen by purchasers of immovables, it is disappointing that the Government of Quebec (Government) did not seize the opportunity to include such legal entities among those that could benefit from the exemptions.
Transfer Duty Exigibility
Under existing law, the transfer duty liability is created at the moment that the immovable is transferred. However, the duty is only payable when the transfer is registered in the land register, therefore, certain transactions could be structured such that the transfer would never be registered and the transfer duty would never became payable.
The Budget states that the law will be amended such that the transfer duty will become due on the date the immovable is transferred.
Unregistered Immovables Transfer
In connection with the measures regarding the exigibility of the transfer duty, a mechanism for disclosure of the transfer of immovables not registered in the land register has been introduced. The Government proposes in the Budget that transferees of immovable not registered in the land register be required to notify the municipality where the immovable is located within 90 days of the transfer. If the transferee fails to do so, only the transferee will be required to pay a special duty equal to 150 per cent of the transfer duty of the immovable. Circumstances where legal titles to immovables are held by nominees for the benefit of the true owner appear to be targeted by this measure. Structures involving nominees should be revisited in light of this proposal and more specifically, the actual legislation that will implement such proposal.
Exemptions Revision and Revocation
The Government proposes in the Budget to amend the conditions applicable to the exemption based on the percentage of voting shares held by a company. The percentage will be established by calculating the number of votes tied to the shares rather than the number of voting shares held. The Government seems to be targeting structures that relied on the exemption on the basis of holding a specified percentage of the voting shares of all of the voting shares of a company regardless of whether such percentage resulted in the holder controlling the company. This proposal could be viewed more as the clarification of an existing measure than the introduction of a new measure.
The Government also imposes an obligation to maintain the exemption condition relating to the percentage of voting rights of a company for a period of 24 months following the immovable's transfer to a company and, in the case where a company that claimed the exemption transferred the immovable to a natural person, for 24 months preceding the immovable's transfer. A disclosure mechanism has also been introduced whereby disclosure would have to be made to the municipality where the immovable is located within 90 days of the date on which the exemption conditions ceases to be met. The municipality could then claim the regular transfer duty. If the transferee fails to disclose, only the transferee will be required to pay a special duty equal to 150 per cent of the transfer duty of the immovable.
The exemption relating to the holding of at least 90 per cent of the fair market value of the issued shares held by a company in another company has been revoked. Unfortunately, no measure has been proposed to preserve the policy goals of the exemption, which only applied in relatively narrow circumstances where companies belonged to the same group.
A separate bulletin discussing these measures in more detail will be prepared in the coming days in collaboration with our Tax group.
This bulletin is an excerpt of our March 2016 Blakes Bulletin: Quebec 2016-2017 Budget: Continued Fiscal Discipline.
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