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Recent Provincial Land Transfer Tax Changes and the Non-Resident Spec-ulation Tax

The Provincial Government in-stituted various changes to the Land Transfer Tax regime

in April of 2017. On April 19, 2017 the Government announced that it would begin collecting information through the Land Transfer Tax sys-tem with respect to the purchases of land that contain one to six family residences or agricultural land. Pur-chasers are now obliged to submit a “PIPS 5” Form. Submission of the Form was mandatory as of Monday, April 24, 2017, although the Minis-try instituted a grace period such that the statements were not mandatory for deals closing until May 5, 2017.

On April 20, 2017, the Province an-nounced a new 15% Non-Resident Speculation Tax (NRST) which would apply to the purchase or ac-quisition of an interest in a residen-tial property located in “Greater Golden Horseshoe” by individuals who are not citizens or permanent residents of Canada or by foreign corporations and taxable trustees.

The NRST was effective as of April 21, 2017. Binding Agree-

ments of Purchase and Sale signed by all parties on or before April 20, 2017 are not subject to NRST.

As the changes to the Land Transfer Tax regime have been in place for a few months now, most real estate law-yers and their assistants will be well versed with the mechanics of input-ting the required information in to the Transfer/Deed of Land prior to registration. Lawyers need to obtain a clearance number which is then in-serted into the appropriate statement in the tax section of the Transfer.

This article will touch on some is-sues to be aware of both as result of the information collection process and as a result of the NRST. The article is based on materials available on the Ministry of Finance website as well as LawPro materials available at the “Avoid a Claim” website. I would re-fer you to both of those sites for a more in depth treatment of these issues.

Section 6 (1) (a) of the Land Transfer Tax Act provides that every person is guilty of an offence who “makes, par-ticipates in, assents to or acquiesces in the making of false or deceptive state-ments in a statement, affidavit, return or other document prepared, submitted or filed under this Act”. The section goes on to set out a minimum penalty

of the greater up to $1,000.00 or 50% of the amount of tax that should have been remitted and a maximum penalty of twice the amount of tax that should have been remitted if the maximum so calculated is greater than $1,000.00. Persons convicted of an offence un-der the section can also be imprisoned for a term of not more than two years.

If you consult the “Avoid a Claim” website, you will see that LawPro has helpfully stated that their policy does not cover fines or penalties, except to reimburse, after final reso-lution, “certain expenses in the suc-cessful defence of certain prescribed penalties under the Income Tax Act and Excise Tax Act”. In other words, if you are fined under Section 6 of the Land Transfer Tax, do not look for LawPro to reimburse you.

In order to avoid being seen as having “participated, assented or acquiesced in the making of a false or deceptive statement”, lawyers should make sure that they have proper evidence in their file to back up the statements. The situation is analogous to the question of whether or not a vendor in a trans-

Real Estate NewsThomas E. Lazier

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action is a non-resident of Canada for purposes of Section 116 of the Income Tax Act. The practice has been that lawyers acting for a purchaser obtain a Declaration from the Vendor. The view is that lawyers are entitled to rely on such a declaration provided that the lawyer has no reasonable reason to be-lieve that the declaration is not correct.

In order to protect yourself, you should complete and print out the Pre-scribed Information for Purposes of Section 5.0.1 Form. That form will set out the information required to be provided. The form is set up so that your client can swear that the in-formation set out in the form is true.

Provided that the lawyer has reviewed the form with the client and the cli-ent has signed the document, the lawyer should be protected from run-ning afoul of Section 6 of the Land

Transfer Tax Act unless the state-ments in the document were false, and the lawyer had a reasonable rea-son to suspect that to be the case.

As these provisions have been just instituted, it will take some time to clarify lawyers’ responsibilities with respect to obtaining and providing the mandated information. Caution should be exercised in making every effort to ensure that the information that is furnished in connection with the Land Transfer Tax requirements is accurate.

The Land Transfer Tax Act definition of “agricultural land” refers to farm land. It appears that lawyers should look to see whether land has been as-sessed as farm land. If so, the land would fall under the definition of ag-ricultural land for the purpose of the Land Transfer Tax Act. Note that, for the purposes of the Act, the criteria is the use that is being made of the land

as of the time of the transfer, not the purchaser’s intended use in future.

As of the date of this writing, it is not possible to pay the NRSA tax auto-matically through the Teraview system upon registration of the Transfer/Deed of Land. In the event that NRST ap-plies to a transaction, you are required to enter a statement in the Transfer that the tax applies and has been paid to the Ministry of Finance as con-firmed by a receipt number which you are required to provide. This means that the NRST needs to be paid in ad-vance directly to the Ministry of Fi-nance’s Office in Oshawa. Following payment, the Ministry will provide a letter confirming receipt of the NRST and a receipt number. Note that if the Transfer is subject to NRST both the Land Transfer Tax and the NRST must be prepaid directly to the Ministry.

Payment needs to be submitted to the Ministry of Finance Compli-ance Branch, 33 King Street West, 3rd Floor, Oshawa, ON, L1H 8H9. You should check with the Ministry to determine what needs to be sub-mitted in your particular situation. Generally, the following will need to be included with the submission:

• Cheque for Land Transfer Tax and NRST;

• Copy of Agreement of Purchase and Sale;

• Statement of Adjustments; • Proof of fair market value of land

in some circumstances; • Form authorising or cancelling a

Representative for each transferee in order to allow the Ministry to deal with the solicitor;

• Copy of “in preparation” Transfer/Deed of Land.

Note that requirements for electronic and paper registrations differ. You should contact the Ministry of Finance to determine what documentation is required for your specific transaction.

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The NRST applies to land in the “Greater Golden Horseshoe” which contains at least one and not more than six single family residences. If the land transfer includes residen-tial and other types of property, the NRST would apply on the value of the consideration attributable to the residential component only.

Note that the 15% NRST will apply in cases where there are multiple Trans-ferees and any one of the Transferees is a “foreign entity” (i.e. a foreign in-dividual or a foreign corporation) or a taxable trustee. The full amount of the tax is payable in such a case, it is not prorated. Each transferee is joint-ly and severally liable for the NRST even if they are not a foreign entity.

Similar to Land Transfer Tax, the NRST will apply to an unregis-tered disposition of the benefi-cial interest in residential property.

The transaction will be exempt from

the NRST if a foreign national pur-chases residential property jointly with their spouse and the spouse is a Canadian citizen or permanent resident of Canada. Note that the exemption is lost if the foreign na-tional and their citizen or permanent resident spouse purchase the prop-erty with another foreign national.

You should be aware that there are rebates applicable after payment of the NRST in certain circumstances. A foreign national who becomes a Canadian citizen or permanent resi-dent within four years of the date of purchase is eligible for rebate as is a foreign national who is enrolled as a full-time University or college stu-dent for at least two years from the date of purchase. Foreign nation-als who have legally worked full time in Ontario for a continuous pe-riod of one year since the date of purchase are also eligible for rebate.

The above rebates only apply if the

foreign national has exclusively held the property in their own name or with their spouse and the property has been used as the foreign national’s principal residence during the applicable period.

The full impact of these new require-ments will not be felt for some years. The Provincial Government will pos-sess significant additional informa-tion which will enable it to audit tax payers in future, for example, prop-erty owners may experience diffi-culty in attempting to claim that they were holding the property in trust for somebody else when they have fur-nished the government with an ex-plicit statement on the purchase date to the effect that the property is being purchased for their own use and not for the use of any beneficial owner.

Lawyers will need to be vigilant in future to ensure that the origi-nal purchase documents and trans-fers are reviewed so that proper advice can be given to clients. n

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