The Québec Budget tabled on March 17, 2016, (the "Budget") announces significant changes to the regime governing the duties on the transfer of real property (immovables) in Québec.1 Of primary importance are changes made to when the transfer duties become payable, which will impact a large number of real-estate structures. Although the Budget provides only a description of the changes and not the actual draft legislation, said changes have immediate application to real estate transfers taking place after the Budget date.
The nominee-beneficial owner structure
A common real estate holding structure in Québec divides the legal and beneficial ownership of real property between two entities. Under this structure, a nominee corporation enters into a deed of sale to acquire legal ownership of the real property and separately into a nominee agreement with the beneficial owner– the principal– whereby it holds the property for the benefit of the beneficial owner. This is usually done for commercial reasons, for example, to preserve the confidentiality of a land purchase in anticipation of the roll-out of a new business location.
Prior to the Budget, the deed of sale whereby the nominee acquired the property was registered in the land registrar but, provided that the nominee agreement was disclosed, did not trigger transfer duties as the transfer of legal ownership in itself did not constitute a "transfer" (defined as the "transfer of the right of ownership of property") for purposes of the duties regime. The subsequent off-title (unregistered) transfer of the beneficial rights of the beneficial owner2 also did not trigger the payment of transfer duties as the transfer duties only became payable on the date of registration of the deed of sale. This would allow for the deferral of the transfer duties until such time as the legal and beneficial rights were combined in one entity.
The Budget does away with this deferral opportunity by introducing a second trigger for the payment of the transfer duty at the time that the off-title transfer takes place. This is done by implementing a reporting obligation for the transferee and an assessment mechanism for the municipality in question.
New reporting obligation
Where the deed ascertaining the transfer of a real property is not registered in the land registrar, the transferee (i.e. the purchaser of the beneficial ownership) is now required to file a notice with the municipality where the real property is located within 90 days following the transfer date. If there is more than one transferee, each is responsible for disclosing the transfer but notice by one is sufficient to meet the obligations of the others.
Notice of the off-title transfer must be given even if the transfer is exempt from transfer duties under an exemption provision (for example, the exemption applicable where the transferor is a legal person who owns 90% or more of the issued full voting shares of the capital stock of the transferee).
In addition to information regarding the transferor and transferee as well as the identity of the legal owner, the notice also requires the transferee to give the names of the professionals involved in the transfer. It is uncertain what utility, if any, this information is meant to have for the municipality.
Due date of the transfer duty
The transferee must pay the transfer duty by the thirty-first day following the receipt of the invoice from the municipality. If the municipality fails to invoice the transferee, it is prescribed from claiming the transfer duties three (3) years from the date of the filing of the notice of transfer.
If the transferee pays the transfer duty after filing the required notice within the prescribed delay, no additional tax is payable should the transfer later be registered in the land registrar.
Consequence of the failure to disclose
A transferee who fails to disclose the off-title transfer within the prescribed time will be liable to special duties equal to 150% of those transfer duties as well as interest calculated from the date of default until the date of the payment of the special duties.
The special duties also apply to a failure to give notice of an off-title transfer in the prescribed time in consequences where an exemption from transfer duties would have otherwise applied.
However, a transferee in default will be able to make a voluntary disclosure to Revenu Québec, in which case Revenu Québec has the discretion to waive up to one-sixth of the special duties. The voluntary disclosure policy is nevertheless quite restrictive and requires, among others, that the disclosure be spontaneous (not already discovered or imminently discoverable by Revenu Québec).3
Consequently, both legal professionals and their real estate clients should now carefully consider these new requirements with respect to both their in-course and future transactions.
1 The land transfer duty regime is set out in An Act respecting duties on transfers of immovables (CQLR c D-15.1) and the Taxation Act (CQLR c I-3).
2 This sale was always accompanied by a sale of the shares of the nominee corporation.
3 See Revenu Quebec, Income Tax Bulletin ADM.4/R6, Voluntary Disclosure Program (May 22, 2015).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.