Canada: Transparency Is Coming: B.C. Passes Real Estate Beneficial Ownership Disclosure And Public Registry Law

On May 16, 2019, the Land Owner Transparency Act (LOTA), one of the B.C. government's signature pieces of legislation to address hidden ownership of real estate in B.C., became law. LOTA requires disclosure of individuals who hold, directly or indirectly, beneficial interests in land in B.C., including through corporate and partnership structures. It also creates a publicly searchable registry of such individuals. While LOTA is not yet in force as regulations are required to make it operational, it is a far-reaching piece of legislation that owners of real estate need to understand.

LOTA is consistent with the government's aim of ending hidden ownership of real estate to prevent tax evasion, fraud and money laundering. Its passage follows on the heels of numerous reports about the prevalence of money laundering in the province and the launch of a public inquiry.

A draft form of the law was released for public consultation in June 2018. LOTA generally reflects that draft, although a number of structural and substantive changes were made. For more information, please see our July 2018 Blakes Bulletin: B.C. to Crack Down on Hidden Ownership of Real Estate with New Reporting Obligations.

WHO IS IMPACTED?

LOTA will impact everyone, including shareholders of corporations, who holds, or may acquire, an interest in land in B.C. Interests in land subject to LOTA include owned lands, leased lands for a term of more than 10 years and other defined interests in land, but excludes Indigenous land and other types of land the government may exclude in the regulations.

Two key terms are helpful for understanding LOTA's application:

Reporting Body

First, LOTA introduces the concept of a reporting body, meaning any of the following:

  • A relevant corporation – This captures all corporations except specifically excluded entities, such as government entities, statutory authorities, public companies, financial institutions, insurance companies, strata corporations, corporations owned by Indigenous nations, and wholly owned subsidiaries of excluded entities.
  • A trustee of a relevant trust – This captures trustees of most trusts, including trustees commonly known as nominees or bare trustees; certain types of trusts are specifically excluded, including charitable trusts, pension plan trusts, bankruptcy trustees, mutual fund trusts and trusts in respect of which each beneficiary is an Indigenous nation. Real estate investment trusts (REITs) were specifically excluded in the draft legislation but are not excluded under LOTA. Additional classes of trusts subject to LOTA may be added in the regulations.
  • A partner of a relevant partnership – This captures partners in all types of partnerships, including general partnerships, limited partnerships, and limited liability partnerships. Additional classes of partnerships subject to LOTA may be added in the regulations.

In all cases, LOTA allows the government to exclude additional entities in the regulations.

Interest Holder

Second, LOTA uses the term interest holder to refer to individuals who directly hold a beneficial interest in land or have certain defined ownership or other rights in respect of land held through corporations or partnerships. These individuals will be subject to disclosure under LOTA. The following classes of individuals are interest holders:

  • A beneficial owner – An individual who, in respect of an interest in land registered or to be registered in the name of a trustee of a relevant trust, either: (a) has a beneficial interest in the land; (b) has the power to revoke a relevant trust in respect of the land; or (c) is a corporate interest holder (such as a significant shareholder—see definition below) of a relevant corporation that has either a beneficial interest in the land or the power to revoke a relevant trust in respect of the land.
  • A corporate interest holder – An individual who either: (a) has registered or beneficial ownership or indirect control of a significant number of shares, defined as shares representing 10 per cent or more of the issued shares or 10 per cent or more of the voting rights, of the relevant corporation; notably, in the draft legislation, this threshold was 25 per cent; or (b) has rights or abilities to elect, appoint or remove the majority of the directors of the relevant corporation. If two or more individuals jointly meet the criteria for a corporate interest holder because the applicable interests, rights or abilities are either jointly held or are required to be jointly exercised, then each individual will be considered a corporate interest holder.
  • A partnership interest holder – Presumed to be an individual who either: (a) is a partner in a relevant partnership; or (b) is a corporate interest holder in a relevant corporation that is a partner in a relevant partnership where, in both cases, an interest in land that is partnership property is registered or to be registered in the name of any partner of such relevant partnership. However, if it can be demonstrated that the individual or the relevant corporation has no interest, right or ability as a partner in respect of the interest in land, then such individual will not be a partnership interest holder. This exclusion will be relevant in certain partnership structures.

The government can also add or exempt certain individuals by regulation.

FILING REQUIREMENTS

Three main circumstances will give rise to a requirement to file certain information with the government: (i) the acquisition of an interest in land; (ii) pre-existing ownership of an interest in land; and (iii) a change of interest holders from a previous filing. Filings are also permitted at any time to correct an error in a previous filing. The government can create exemptions to the general filing requirements by regulation.

Acquisition of an Interest in Land

When applying to register an interest in land subject to LOTA in the land title office, such as a transfer or a lease for a term of more than 10 years, two documents may be required:

  • Transparency declaration – Each transferee must file a transparency declaration stating (a) whether or not the transferee is a reporting body; and (b) if the transferee is a reporting body, the type of reporting body.
  • Transparency report – If the interest in land will be registered in the name of a reporting body, then the reporting body must file a transparency report. The content of transparency reports is discussed in detail below.

In practice, a transparency declaration will be required for all applications to register an interest in land subject to LOTA, whether or not a further transparency report filing is required. Failure to submit a transparency declaration—and, if required, a transparency report—will result in the land title office refusing to register the interest in land. Both documents must be in the required form and must be certified as correct and complete.

Pre-existing Ownership of an Interest in Land

If, immediately before LOTA comes into force (to be set by regulation), a reporting body is a registered owner of an interest in land subject to LOTA, then the reporting body must file a transparency report within a period of time to be set by the regulations. This requirement will not apply if, before the end of the reporting period, the reporting body disposes the interest in land or otherwise no longer qualifies as a reporting body.

The intention of this requirement is to take a snapshot of all individuals with unregistered interests in real estate, including through corporations and partnerships, once LOTA comes into force. This will be a massive undertaking given the sheer number of interests in land held by trustees, corporations and partners, so we would expect the government to allow a substantial amount of time for reporting bodies to become compliant. However, owners of real estate would be wise to start early on reviewing their real estate holdings and identifying the interest holders who will have to be disclosed.

In addition, if an individual or entity subject to LOTA is a registered owner of an interest in land and, after acquiring the interest in land, becomes a reporting body, then it must file a transparency report within two months of becoming a reporting body.

Change of Interest Holders from a Previous Filing

LOTA requires a reporting body to file a new transparency report within two months after the date it becomes aware, or reasonably ought to become aware, that (a) a previously filed transparency report no longer discloses the current interest holders, or (b) an interest holder disclosed in a transparency report has become incapable of managing the individual's financial affairs. For example, if a shareholder of a corporation that owns land in B.C. held five per cent of the corporation's issued shares when the land was acquired, subsequently acquires additional shares to hold 10 per cent of the issued shares, then the corporation (assuming it is aware or ought to be aware of the change) would have two months to file a new transparency report identifying the shareholder as an interest holder.

CONTENTS OF TRANSPARENCY REPORTS

A transparency report must include certain information about the reporting body itself, which is unique depending on the type of entity, as well as for each individual interest holder. It must also include information about the land, the individual certifying the report, and any additional information the government requires in the regulations. LOTA requires disclosure of specific primary identification information (which will be publicly accessible) and other additional information (which will only be accessible by selected entities, generally governmental authorities). The information that will have to be disclosed in transparency reports includes the following:

Primary Identification Information

  • Individuals – Full name; Canadian citizenship or permanent residency status; if not a Canadian citizen or permanent resident, every country of citizenship; and location of principal residence.
  • Relevant corporations – Name; registered office address; head office address, if any; jurisdiction of incorporation, organization or formation; and jurisdiction into which the corporation was most recently continued or transferred, if applicable.
  • Relevant partnerships – Registered business name, if any; type of partnership; registered address or head office address; address of principal business premises; and jurisdiction governing the partnership and the partnership agreement, if any.

Additional Information – Interest Holders

  • Date of birth; last known address; social insurance number or individual tax number, if any; whether or not the individual is resident in Canada for the purposes of the Income Tax Act (Canada) (ITA); date on which the individual became or ceased to be an interest holder; a description of how the individual is an interest holder; and a statement as to any incapacity, if applicable.

Additional Information – Reporting Bodies

  • Relevant corporations – Business number, if any, under the ITA; and incorporation, continuation, amalgamation or other identifying number or designation given by the applicable jurisdiction.
  • Trustees of relevant trusts – Information about each settlor—generally the same as required for interest holders, if an individual settlor, or primary identification information, if a corporate settlor; and reference number of registered trust instrument, if any.
  • Partners of relevant partnerships – Relevant partnership's business number, if any, under the ITA; and identifying number issued by the jurisdiction of formation.

Reporting bodies are required to take reasonable steps to obtain and confirm the accuracy of information contained in transparency reports. This means that it may be prudent to view supporting documentation in respect of information received. To assist with completing transparency reports, LOTA empowers reporting bodies with the ability to require that a person who is or may be an interest holder or settlor provide the reporting body with information. Once a written request for information is received, the interest holder or settlor must take reasonable steps to compile the requested information. If a reporting body is unable to obtain or confirm the accuracy of some of the above information, it must set out a summary of the steps taken to obtain or confirm the information.

Before filing a transparency report, a reporting body must take reasonable steps to give written notice to each interest holder and settlor that information is required, that an individual can request some or all of its primary identification information be omitted from or obscured in publicly accessible information, and that, absent a request within 90 days after the transparency report is filed, the information will be publicly accessible.

REGISTRY AND ACCESS TO INFORMATION

LOTA will create a registry to be administered by the Land Title and Survey Authority (LTSA) pursuant to which information filed in transparency declarations and transparency reports will be accessible by the general public and governmental authorities.

Public information will be limited to primary identification information on reporting bodies and interest holders, as well as any other information set out in the regulations. However, primary identification information in respect of an interest holder or settlor will not be publicly accessible until at least 90 days after the transparency report has been accepted for filing. This means that anyone searching the public registry will not be able to rely on the information being current. The purpose of this delay is to allow individuals an opportunity to apply to omit certain information from the public record (for example, if the health or safety of an individual is risk). Further, 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.

All of the information contained in transparency declarations and transparency reports will be immediately available for search and inspection by enforcement officers under LOTA, Ministry of Finance officials, federal and provincial tax authorities, the British Columbia Assessment Authority, federal and provincial law enforcement, and regulators, including the British Columbia Securities Commission, the Financial Institutions Commission, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), and the Law Society of British Columbia, and other prescribed entities.

Information in the registry will be searchable in a manner similar to what currently exists for land title information, including searches by Parcel Identifier (PID) to determine the interest holders for a parcel and searches by name to identify the interests in land in which the named individual is an interest holder.

ENFORCEMENT

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

Inspection powers are granted to the enforcement officers under LOTA in order to determine compliance, 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.

Certain contraventions of LOTA are subject to administrative penalties up to the greater of (a) C$25,000 (for individuals) or C$50,000 (for non-individuals) and (b) five per cent of the assessed value of the property. More serious contraventions of LOTA may be found to be an offence subject to a fine up to the greater of (a) C$25,000 to C$50,000 (for individuals) or C$50,000 to C$100,000 (for non-individuals) and (b) 15 per cent of the assessed value of the property, depending on the offence.

For permission to reprint articles, please contact the Blakes Marketing Department.

© 2018 Blake, Cassels & Graydon LLP.

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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3 Oct 2019, Seminar, Toronto, Canada

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30 Oct 2019, Other, Toronto, Canada

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