You may have seen the article in the National Post of February 24, 2016, discussing the changes to the Land Transfer Tax Act (the “Act”) which were recently enacted. In draconian fashion, the Provincial Government has made these “clarifying amendments”, as it calls them, retroactive to July 19, 1989. In my opinion, enacting a “clarification” which calls into question transactions which took place over the last 27 years is a very disturbing and unusual step for a government to take.
The changes relate to Section 3 of the Act, which enacts land transfer tax on unregistered dispositions of beneficial interests in real property and which has been in effect since 1989. The 1989 legislation exempted from taxation the acquisition of less than a 5% partnership interest in property owned by the partnership. So for example, if one acquired a 4% partnership interest in a property owned by the XYZ Limited Partnership there would be no land transfer tax payable.
The recent 2016 amendments have now “clarified” that the exemption will not be available if the transferee is a trust or another partnership. Using the above example, if the buyer of the 4% partnership interest in XYZ Limited Partnership is a partnership or a trust, the transaction would now be taxable. If the buyer is an individual, corporation, or another entity, the exemption still applies.
If the changes were enacted only for future transactions there would be no issue. However the problem is that transactions completed over the last 27 years may be reassessed. According to the National Post article, several very significant acquisitions by REITS and investment partnerships were structured to take advantage of this exemption and may now be taxable. The principle applies to all deals big and small and any partnership or trust which took advantage of the exemption, which seemed non–problematic at the time, may get a bill from the Ministry of Revenue. It will be interesting to see if the retroactivity of these amendments will withstand a court challenge.
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