Canada: B.C. To Crack Down On Hidden Ownership Of Real Estate With New Reporting Obligations

On June 20, 2018, the B.C. Ministry of Finance released a white paper on draft legislation that will require reporting on beneficial ownership of land in B.C. The draft legislation, titled the Land Owner Transparency Act (LOTA), follows the government's announcement in the 2018 budget that it intends to collect and make available information about beneficial ownership of land in a public registry. The government's stated intention behind the registry is to end hidden ownership of real estate to prevent tax evasion, fraud and money laundering.

The scope of the reporting obligations under LOTA is extensive and will have implications for anyone who currently holds, or in the future may acquire, an interest in land in B.C., including shareholders of a corporation that holds or acquires an interest in land. Broadly speaking, the intent behind LOTA is to identify all individuals who ultimately own real estate in B.C.

The government is accepting comments on the draft legislation until August 19, 2018. More information about the consultation, including a copy of the white paper and draft legislation, is available on the Ministry of Finance's website.

WHO IS IMPACTED?

LOTA may impact anyone who holds, or in the future acquires, an interest in land in B.C., which includes freehold and leasehold interests. LOTA introduces the concept of a "reporting body", meaning:

  • A relevant corporation, which generally captures all corporations except exempt entities such as government entities, statutory authorities, public companies and institutional entities.
  • A trustee of a relevant trust, which generally captures any trustee of a trust, including trustees commonly known as nominees or bare trustees; certain types of trusts are excluded from the meaning of relevant trust, including charitable trusts, pension plan trusts, bankruptcy trustees, mutual fund trusts and real estate investment trusts (REITs).
  • A partner of a relevant partnership, which generally captures partners in all types of partnerships, including general partnerships, limited partnerships and limited liability partnerships.

Also important to the application of LOTA is the concept of an "interest holder", which is limited to individuals who hold beneficial interests in land directly, or through corporations or partnerships. The following classes of individuals are interest holders under LOTA:

  • A beneficial owner, which captures an individual who: (a) has a beneficial interest in an interest in land; (b) has the power to revoke a trust in respect of an interest in land; or (c) is a "corporate interest holder" (i.e., a significant shareholder) of a corporation that has a beneficial interest in an interest in land or that has the power to revoke a trust in respect of an interest in land.
  • A corporate interest holder, which captures an individual who: (a) has ownership or control, directly or indirectly, of 25 per cent or more of the equity or voting rights in a corporation; (b) directly or indirectly, can appoint or remove a majority of the directors of a corporation; or (c) has "significant influence" or control over a corporation.
  • A partnership interest holder, which captures an individual who: (a) has an interest, as a partner in a partnership, in an interest in land that is partnership property registered in the name of a partner; or (b) is a corporate interest holder (i.e., a significant shareholder) of a corporation that has an interest, as a partner in a partnership, in an interest in land that is partnership property registered in the name of a partner.

FILING REQUIREMENTS

Under LOTA, three main circumstances give rise to a requirement to file certain information with the government: (a) the acquisition of an interest in land; (b) pre-existing ownership of an interest in land; and (c) a change in beneficial ownership.

Firstly, on an application to register an interest in land in the land title office:

  1. The transferee must file a "transparency declaration" indicating whether or not the interest in land will be registered in the name of a reporting body.
  2. If the interest in land will be registered in the name of a reporting body, the reporting body must file a "disclosure report".

In practice, a transparency declaration will be required for all applications to register an interest in land subject to LOTA, including transactions where a disclosure report is not required because the interest will not be registered in the name of a corporation, trustee, or partner to which LOTA applies. Failure to submit a transparency declaration and, if required, a disclosure report, will result in the land title office refusing to register the interest in land.

Secondly, a reporting body that is currently a registered owner of an interest in land in B.C. must file a disclosure report on or before a date to be prescribed by regulation. This requirement will apply to any reporting body that owns an interest in land in B.C. immediately before the relevant section of LOTA comes into force.

Thirdly, LOTA will require a reporting body to file a new disclosure report within two months after the date it becomes aware of a change in interest holders (i.e., individuals).

CONTENTS OF DISCLOSURE REPORTS

A disclosure report filed by a reporting body must include specified identification information about the reporting body, which is unique depending on the entity. For corporations, this includes their name, address, business number and jurisdiction. For individuals, this includes their name, citizenship and principal residence.

A reporting body must also make reasonable efforts to disclose specified information for each interest holder (i.e., individuals) in the reporting body, including their name, citizenship, principal residence, date of birth and social insurance number. If the reporting body is a trustee, it must also disclose information about the settlor of the trust. Additional information that must be disclosed on a reasonable efforts basis includes the following, which depends on the type of reporting body: (a) if a corporation, the rights and interests that each corporate interest holder (i.e., significant shareholder) has in the corporation; (b) if a trustee, the interests and powers that each beneficial owner has in respect of the interest in land; and (c) if a partner, the interests the partnership interest holder (i.e., an individual partner or significant shareholder of a corporate partner) has in respect of the interest in land.

REGISTRY AND ACCESS TO INFORMATION

LOTA will create a registry to be administered by the Land Title and Survey Authority pursuant to which information filed in transparency declarations and disclosure reports on reporting bodies and interest holders (i.e., individuals) will be accessible by the general public, law enforcement, taxing authorities and regulatory authorities. The government intends that this information will be searchable in a manner similar to what currently exists for land title information, including searches by parcel identifier (PID) to ascertain the individuals holding beneficial interests in such parcel or searches by name to identify beneficial interests in land held by such individual.

Publicly accessible information will be restricted to certain identification information for reporting bodies and interest holders (i.e., individuals) such as name, address, business number and jurisdiction (for corporations) or name, citizenship and principal residence (for individuals). However, such publicly accessible information will not be available for interest holders until at least 30 days after a disclosure report is filed. During this 30-day period, individuals can apply to omit certain identification information from the public record. Information about individuals under 19 years of age and those determined to be incapable of managing their financial affairs will be omitted from the publicly accessible information.

ENFORCEMENT

Failure to submit a transparency declaration and, if required, a disclosure report, will result in the land title office refusing to register the interest in land.

Contraventions of LOTA may be subject to administrative penalties of up to C$50,000 (for corporations) or C$25,000 (for individuals) or may be found to be an offence subject to a fine of up to C$100,000 (for corporations) or C$50,000 (for individuals).

Inspection powers are granted to the Land Title and Survey Authority in order to determine compliance with LOTA, including powers to enter a place of business or records office, to require a person to produce records or answer questions relevant to an inspection, and, subject to a claim of solicitor-client privilege, to inspect records in the possession of a lawyer.

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.

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