Canada: The End Of Anonymous Land Ownership In British Columbia

Last Updated: August 6 2018
Article by Robert G. Nikelski, Wilfred Chan, Taylor Buckley and Daniel L.R. Yaverbaum

Anonymous ownership of land is possible in countries with Anglo-American law (including Canada) by holding land through corporations, trusts and other legal arrangements. Those structures are key elements of the Canadian legal system, but can be abused to enable tax evasion and money laundering, among other misdeeds.

To address those issues, and try to put a damper on British Columbia's red-hot real estate market, the government of British Columbia has announced legislation that is the first of its kind in Canada and would require public disclosure of the individuals at the end of the land-ownership chain. The proposal is to create a "beneficial ownership registry" that would require the owners of land in British Columbia to identify to the Government all the individual people (e.g., shareholders, trust beneficiaries, etc.) that hold a beneficial interest in the property. The registry would be accessible by the general public, subject to certain proposed exemptions. The proposed law will not change the current tax regime in British Columbia, however, the potential for future changes to the taxes payable upon transfer of beneficial ownership exists.

The Government is seeking comments on the proposed law by August 19, 2018, including in respect of potential exemptions from the proposed reporting requirements. Please contact one of our key contacts or any member of our Dentons Real Estate team to act on this opportunity to provide submissions to the Government ahead of the deadline.

Background

The current land transfer system in British Columbia – as in other jurisdictions – requires only that the legal owners of the property be disclosed in the land title registry. This allows a company to hold real estate in its own name, rather than in the name of the individual(s) behind it. Alternatively, a nominee could be a registered owner of a property pursuant to a bare trust without identifying the beneficiaries of the trust, or without even disclosing that the nominee is not the beneficial owner. While the Government has required new purchasers to disclose the existence of a bare trust – and the beneficiaries thereof – for all transfers of legal title since 2016, this information has not been sought in respect of pre-existing beneficial owners or transfers of pre-existing beneficial interests.

These ownership arrangements have attracted greater scrutiny in recent years, especially their use in respect of Vancouver residential property. With public attention also directed at rapid increases in home prices and large-scale money laundering, the government of British Columbia proposed a list of reforms to the real estate sector in its 2018 Budget. One such reform is to increase transparency as to the true owners of real estate by requiring disclosure of all direct and indirect beneficial owners, i.e., the individuals who own or control the property through one or more intermediaries.

Draft legislation: Overview

The proposed law, known as the Land Owner Transparency Act (LOTA), would require disclosure of the ultimate beneficial owners of an "interest in land", which includes strata property and long-term leases, as well as freehold residential or commercial property. It mandates new disclosure by companies, partnerships and trusts. There are exceptions for organizations that already have disclosure requirements (such as publicly-listed companies), or are considered less susceptible to abuse (such as charitable trusts). There is also scope for exemptions by way of regulations, which have not yet been proposed. The non-excepted entities, i.e., those subject to the new disclosure rules, are referred to as "relevant corporations", "relevant partnerships" or "relevant trusts".

The LOTA sets out three new filing obligations:

  1. A registered owner as of the date that the LOTA becomes effective – specifically, a relevant corporation, a partner of a relevant partnership or a trustee of a relevant trust – that is holding real property for the benefit of others, including commercial and industrial properties, will have to explain the ownership structure and name certain individual owners (referred to as "interest holders"), through a new filing known as a "disclosure report".
  2. For any transfer of legal title that occurs after the effective date, a transferee will have to make a "transparency declaration", indicating whether it is a relevant corporation, a partner holding for a relevant partnership, or a trustee holding for a relevant trust. Any such owner would then have to file a disclosure report.
  3. Also after the effective date, a new disclosure report would have to be filed within two months of any change in interest holders that does not involve a legal transfer of title.

In the case of a relevant partnership or relevant trust, all partners and beneficiaries with an interest in the property would have to be identified, although the regulations may provide exemptions. In the case of a relevant corporation, individual controlling shareholders1 would need to be named. A relevant partnership or relevant corporation would also have to provide information about itself, including its registered office address and business number.2

The draft legislation recognizes that, in some cases, a registered owner will not have information about interest holders, or will have difficulties verifying such information. In that respect, it creates a duty for registered owners "to make reasonable efforts to obtain and confirm the accuracy" of interest holders' information,3 and to report certain details in the event that interest holders cannot be identified despite such efforts.4

Privacy matters

The information in the disclosure reports will form a registry of beneficial landowners in British Columbia. Some personal information would only be accessible to law enforcement and other public authorities. This includes interest holders' social insurance numbers and all information about interest holders who are minors. Other data, including the name and city of residence of an interest holder, will be accessible by the public.

The disclosure obligations – and the public access, in particular – will raise concerns about the privacy rights of interest holders. The LOTA attempts to address such concerns in a number of ways, including requiring the registered owner to notify the interest holder(s) of the disclosure obligations, and prohibiting misuse of personal information made available. For example, using such information to solicit or harass an interest holder will be an offence under the LOTA.5 In addition, interest holders may request that personal information be omitted if disclosure "could reasonably be expected" to threaten to their health or safety.6 If such a request is granted, then some or all of their personal information required to be disclosed will not be made public, but will still be accessible to law enforcement and other authorities.

There will be a fee for members of the public to search the registry, which is another way to limit unnecessary invasions of privacy. The fee amount has not yet been set, and it is not clear who might be exempted from having to pay it, though the regulations will shed light on this. One possibility is that accredited members of the media could be entitled to conduct searches without charge if they are doing so for the purpose of exposing abuses that the legislation is intended to address, such as tax evasion or fraud.7 Public authorities will not have to pay a fee to search the registry.

Potential liability

The LOTA provides for administrative penalties and criminal offences for contraventions of certain sections of the act. For example, providing false or misleading information in a transparency report or disclosure report could result in an administrative penalty or constitute an offence.8 

The administrative penalty for a contravention of the LOTA is capped at $25,000 for an individual and $50,000 for a corporation, while the fine for an offence is capped at $50,000 for an individual and $100,000 for a corporation. A contravention of the LOTA cannot result in imprisonment. 

The LOTA provides a short time frame to pay or dispute an administrative penalty. A person receiving notice of an administrative penalty has 14 days within which to pay or dispute the penalty. That person then has 30 days to deliver written submission to the administrator. Alternatively, that person may request an oral hearing to determine the dispute, but only if the administrative penalty is greater than $10,000 for a corporation or $5,000 for an individual.9 Offences for contravening the LOTA will be prosecuted as criminal offences.

The administrative penalties or fines may be imposed on an officer, director, manager or agent of a corporation or limited liability company who authorizes, permits or participates in a prescribed contravention of the act. That potential liability is in addition to any administrative penalties or fines that could be levied on the corporation itself. For example, the LOTA expressly provides that an officer, director, manger or agent may commit an offence whether or not the corporation or limited liability company is charged or convicted.10

Next steps

As noted, the Government is seeking comments on the proposed legislation, including potential exemptions from the reporting requirements, by August 19, 2018. One example is a possible exemption from the reporting requirement for interests in "broadly-held limited liability partnership interests",11 and it is reasonable to assume that additional exemptions will be enacted. Notably, the United Kingdom is similarly in the process of creating a registry of beneficial owners of land in that country, and is considering the scope of reporting requirements, as described here. The UK legislation, when published, may impact the British Columbia government's views on the breadth of disclosure required under the LOTA.

* Daniel McElroy, Knowledge Management Lawyer in Dentons' Vancouver office, contributed to this alert.

Footnotes

1 Specifically, any individual who: (a) legally or beneficially owns or controls 25 percent or more of the equity or voting rights, (b) has the right to appoint or remove a majority of the board of directors, or (c) exercises "significant influence or control" over the corporation. This is set out in section 3 of the LOTA.

2 Sections 7 and 9 of the LOTA.

3 Section 17 of the LOTA.

4 Section 22 of the LOTA.

5 Section 75(a) of the LOTA.

6 Section 38 of the LOTA.

7 Section 34(2)(e) of the LOTA provides an exemption from the fees for "a prescribed person or entity, if the prescribed person or entity is searching, inspecting or obtaining copies or extracts for the purposes specified in the regulations". With respect to a possible exemption for media, it could resemble the policies that allow accredited media to use recording devices in British Columbia courtrooms.

8 Section 69 of the LOTA.

9 Section 61 of the LOTA.

10 Sections 64 and 77 of the LOTA.

11 This is identified in the notation to Part 7 of the LOTA, on page 49 of the government's White Paper.

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