Canada: Further Changes To Ontario's Land Transfer Tax Regime: Trust And Partnership Transparency On The Chopping Block

When assessing land transfer tax ("LTT") under the Land Transfer Tax Act (Ontario)1 (the "LTTA"), the Province of Ontario (the "Province") has long taken the position that partnerships and trusts are not to be characterized as "persons" for LTT purposes. Instead, such collective investment vehicles are generally "looked-through" when applying the LTTA. 

In this regard, many collective investment vehicles have traditionally not borne LTTA reporting obligations with respect to their members or beneficiaries. In addition, special rules have historically simplified LTT compliance by relieving small, indirect transfers of real property held through a partnership from the imposition of LTT.

However, the Province has recently become concerned with what it sees as "increasingly complex partnership and trust structures...being used to acquire and hold land in Ontario."  In the eyes of the Province, this "complexity has created challenges to the effective administration and collection of the LTT in respect of unregistered dispositions of beneficial interests in land."  As a consequence, the Province has been looking to broaden the circumstances under which those with interests in collective investment vehicles will be subject to LTT in connection with the direct or indirect disposition of real property in Ontario. 

2016 Amendments

In February, 2016, the Province amended the de minimis exemption from LTT offered to certain partnerships that hold land in Ontario. Regulation 70/91 provides an exemption from LTT where membership interests in a partnership change (resulting in acquisitions of the underlying land held by the partnership, since the partnership is "looked-through" for LTT purposes), but only where such a change is minimal. Specifically, the de minimis exemption applies where a person's entitlement to share in the profits of a partnership, following a change in partnership interests, does not exceed, by more than 5%, the percentage of partnership profits to which the person would have been entitled at the beginning of the year. The February, 2016 amendments to Regulation 70/91 preclude the de minimis exemption from applying where the acquiring person (i.e., the member of the partnership in question) is another partnership or a trust.

In enacting the 2016 amendments, the Province expressed concern that the transparent nature of partnerships and trusts may relieve the application of LTT on large purchases of land made through such vehicles.

New Proposed Amendments

On July 14, 2017, the Province introduced further proposed modifications to Ontario's LTT regime, which are aimed at (i) generating further information about those with interests in collective investment vehicles, and (ii) placing substantive collection (and potential payment) obligations on such vehicles themselves.

The Province proposes to create two new groups of vehicles for the purposes of the LTTA. Group 1 vehicles will include specified investment flow-through ("SIFT") trusts and SIFT partnerships,2 trusts governed by a registered pension plan that are exempt from taxation under the ITA,3 and "mutual fund trusts".4 Group 2 vehicles will generally include vehicles that do not fall in Group 1 and that satisfy the following criteria:

  1. The vehicle is a "unit trust", as defined in the ITA, or a partnership that has filed, or was required to file, a declaration under the Limited Partnerships Act (Ontario); and
  2. The vehicle has issued its "investments" to 50 or more arm's length unitholders or partners, as applicable (or such other minimum threshold as the Ministry of Finance ultimately determines to be appropriate).

The proposed amendments will deem vehicles in Group 1 to be "persons" for the purposes of the LTTA, such that LTT will be levied directly on the vehicle in respect of any purchases of land or interests in land by the vehicle.  (The proposed amendments will correspondingly provide that an acquisition of an interest in a Group 1 vehicle by a partner or unitholder will not subject the partner or unitholder to the imposition of LTT, as vehicles in Group 1 will cease to be "looked-through" vehicles for the purposes of the LTTA.)

With respect to vehicles in Group 2, each unitholder and partner of a Group 2 vehicle will be treated as a "person" for LTT calculation purposes. The Province proposes to deem Group 2 vehicles to be "LTT collectors", which will be required to collect and remit LTT, calculated at the unitholder or partner level, on acquisitions of beneficial interests in land through the vehicle. Group 2 vehicles will be entitled to collect LTT from unitholders and partners by deducting or withholding amounts from future distributions to such persons. A Group 2 vehicle that fails to collect LTT, as required by the new rules, will be subject to a penalty in an amount equal to at least the amount that it failed to collect.

The proposed amendments do not have the effect of eliminating the transparent nature of Group 2 vehicles for the purposes of the LTTA; they simply impose the onus of LTT collection on the vehicles. Reporting by Group 2 vehicles in respect of acquisitions of land will be required to be made to the Ministry of Finance on a quarterly basis (or such other period that the Ministry determines to be appropriate based on the results of the current public consultation).

Under the proposed amendments, acquisitions of land held through Group 1 or Group 2 vehicles that arise by virtue of a distribution or dividend reinvestment plan will not attract the application of LTT. 

Finally, the Province has indicated that it will enact rules requiring the disclosure of information, at the time title is registered in respect of land, regarding persons, trusts, partnerships, and other vehicles for whose benefit such land is held.  In this regard, nominees that hold land for the benefit of a partnership or trust will be required to disclose the legal names and business registration numbers of the principals on whose behalf legal title to the land is held.

*  *  *  *

It is important to note that the proposals released on July 14, 2017, are not exhaustive and do not include every potential measure being considered by the Province. The Province is seeking public input on its proposed amendments by August 28, 2017. Following the end of the consultation period, the Province is expected to provide more details on the amendments that will ultimately be enacted into law.

Footnotes

[1] R.S.O. 1990, c.L.6, as amended.

[2] As defined in section 122.1 of the Income Tax Act (Canada), R.S.C. 1985, c.1, as amended (the "ITA").

[3] See paragraph 149(1)(o) of the ITA.

[4] See subsection 132(6) of the ITA.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2017

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Jonathan C.G. Bright
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.