All municipalities in Quebec impose a transfer duty, commonly referred to as the "Welcome Tax", on real estate acquisitions (subject to certain exemptions and exclusions). It is thus important to understand the nature of this duty in order to identify its impacts and plan your real estate transactions accordingly.
This duty is not called a "Welcome Tax" for hospitality reasons, but because the Minister of Municipal Affairs who instituted it was named Jean Bienvenue ("bienvenue" means "welcome" in English).
The collection of real estate transfer taxes by Quebec municipalities has been obligatory since 1992. The applicable statutory framework is comprised of the Act respecting Duties on Transfers of Immovables and the Act respecting Municipal Taxation.
This transfer duty is a direct property tax that applies to the transfer of any real-estate property and is collected by the municipality where the property is located.
The duty is payable by the acquirer of the property and is due on the 31st day after the account therefor is sent out by the municipality. It is generally done between the third and sixth month following the registration and publication of the notarized transfer deed.
Given the major financial impact that the Welcome Tax can have, we recommend that you fully understand and anticipate this additional cost of acquiring real estate. Straightforward tax planning for real estate transfers can save you money.
Calculating the transfer duty
The Act respecting Duties on Transfers of Immovables provides that the tax base for the transfer duty is calculated on the basis of the greatest of the following amounts:
- the amount of the consideration furnished for the transfer of the immovable (i.e. the price paid);
- the amount of the consideration stipulated for the transfer of the immovable (i.e. the price specified in the transfer deed);
- the amount of the market value of the immovable at the time of its transfer (the standardized value of the property entered on the municipal assessment roll).
The amount of the duty payable by the acquirer will be calculated in accordance with the following rates applied to the tax base as established above:
- on that part of the basis of imposition which does not exceed $50,000: 0.5%;
- on that part of the basis of imposition which is in excess of $50,000 but does not exceed $250,000: 1%;
- on that part of the basis of imposition which exceeds $250,000: 1.5%.
As the transfer duty is calculated on the basis of the value of the acquired property, it is important to identify what is actually being transferred, as it could have a significant impact on the amount of the duty to be paid.
Special provisions for Montreal
For acquirers of property in Montreal, there is an added surtax on the transfer duty: any base amount in excess of $500,000 is subject to an additional rate of 2.0%, and a base amount in excess of $1,000,000 is subject to an additional rate of 2.5%.
Exemptions and exclusions
It should be noted that some real estate transfers are specifically exempted or excluded from the transfer duty. Such is the case for example where:
- the transferee is a public body;
- the transferee and the transferor are registered charities for the purposes of the Taxation Act;
- the transferred property is part of a registered agricultural operation;
- the transferor is an individual and the transferee is a legal person of which at least 90% of the shares are owned by the transferor;
- the tax base is less than $5,000;
- the transfer is made to a relative who is a direct ascendant or descendant of the transferor (other than a brother or sister), i.e. a son, mother, spouse, father-in-law, daughter-in-law, grandfather, etc.
It should also be noted that even where no transfer duty is payable because of an exemption or exclusion, the municipality may nevertheless impose a special duty of $200. Moreover, other special duties are also provided for in the Act respecting Duties on Transfers of Immovables.
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.