The Ontario Government began to tax beneficial transfers of real
property in Ontario under the Land Transfer Tax Act on
July 19, 1989. The objective was to prevent the avoidance of
land transfer tax where the seller would transfer the beneficial
interest in real property along with the shares of a special
purpose corporation holding the legal or registered title to the
real property. However, a partnership is not a legal entity for
land transfer tax purposes. As a result, the taxation of beneficial
transfers resulted in tax being payable each time the interests of
partners in a partnership changed, for example, when a new partner
entered a partnership or partners contributed to the partnership
The Ontario Government realized that this would result in an
excessive administrative burden on such small changes in
partnership interest. For this reason, it provided an exemption
from the taxation of a beneficial transfer of real property in the
Regulations to the Land Transfer Tax Act. The exemption
has provided that when the interest of a partner does not increase
by more than 5% in the fiscal year of the partnership, there is no
obligation to file a return or to pay the land transfer tax. This
was a practical solution and this so-called de minimis has
remained in place until recently.
On Feb. 18, 2016, the Ontario Government announced that it had
amended the de minimis exemption, and done so retroactive
to its inception in 1989. The amendment provided that the de
minimis exemption is not available if the partner acquiring
the interest in a partnership is either a trust, or another
partnership.1 In an administrative statement released
with the amendment, the Ontario Ministry of Finance (the
"Ministry") described it as "clarifying" in
nature, even though the amendment was an obvious reversal from the
past advice of the Ministry. This was clear as the Ministry
confirmed that it would honour past rulings on the availability of
the exemption for partnerships and trusts.
The response of the business, legal and tax communities has been
focussed and fierce. The Ministry received detailed critiques of
the amendments from the Real Property Association of Canada and the
Tax Section of the Ontario Bar Association. By March 24, 2016, the
Ministry had retreated, though only somewhat. The Ministry issued a
revised administrative statement advising the Ministry would:
Limit assessments to dispositions in the four years since
February 18, 2012, rather than assessing up to 27 years in the
Not prosecute dispositions before the announcement on February
18, 2016, though it is unclear how it could establish the required
mens rea on a retroactive change in law;
Extend the filing deadline for returns on transfers after the
announcement to December 31, 2016, which was a necessary and
practical concession given the Ministry's lack of consultation
prior to amendment; and
Permit one partner to file on behalf of other partners, though
this streamlining measure is likely to benefit the Ministry as much
While these administrative changes did address the retroactive
application beyond a four year period in the past, and did provide
some time for taxpayers to address their compliance, the Land
Transfer Tax Act now no longer has an effective de
minimis rule to assist partnerships and trusts that invest in
partnerships that hold land in Ontario. This leaves many legitimate
businesses, including pension plans and investment funds, holding
real estate in Ontario with challenging compliance obligations.
The amendment results in land transfer tax effectively being
paid a second time, first, on the acquisition of real property in
Ontario and, second, on changes in partnership interest. And
finally, to make matters worse, the same amendments will apply for
purposes of the Toronto land transfer tax.
It appears the Ontario Government has simply ignored why it
provided the de minimis relief back in 1989.
1 A secondary amendment provided that a
"partner" means a limited partner or a general partner
for the purposes of the Limited Partnerships Act (Ontario), where
the partnership has filed, or was required to file, a declaration
under that Act. It is not clear what this is intended to
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