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What are some of the Exceptions to the Ontario Land Transfer Tax?
Transfers of land between affiliated corporations, No consideration is given, certain transfers between the spouses, Certain easements granted to oil or gas pipe lines, Certain conveyances of family farms or family business corporations, Other exemptions include disposition of land by an employee to employer, certain life lease interests, Hospital restructuring, Charity Reorganizations, certain transfers under the municipal water and sewage transfer act and certain acquisitions under the Toronto Islands Residential Community Stewarship Act, 1993.
Summary of the Law
Based on S. 2(1) of Ontario Land Transfer tax Act, Ontario’s Land Transfer Tax (LTT) applies to all transfers of land in Ontario upon registration of the conveyance, with few exceptions. Whenever one acquires land or acquires a beneficial interest in land, they incur land transfer tax. This tax is based on the amount paid for the land, in addition to the amount remaining on any mortgage or debt assumed. Due to the major concerns over tax avoidance, Bill 14 Building Opportunity and Securing our Future Act amended the Land Transfer Tax to set out a general anti-avoidance rule for transactions that are completed after May 1, 2014. Below are the few instances where Land Transfer Tax may not apply.
Transfers of Land Between Affiliated Corporations
Section 3(9) of the Act provides for the deferral and possible cancellation of the LTT between affiliated corporation if the following conditions are met:
(a) Before the thirtieth day after the date of disposition of the interest in land, the corporation applies to the Minister for the deferral with an undertaking that for a period of at least thirty-six consecutive months immediately following the date of the disposition:
(i) the corporations will continue to be affiliates of each other.
(ii) The corporation acquiring the interest will retain it.
(b) Security for the tax (of an acceptable kind) is provided to the Minister
(c) The conveyance and disposition is not registered.
Under the new Anti-Avoidance Rules, the deferral would become payable if a title document is registered during the above deferral period. Furthermore, Section 3(14) further clarifies the definition of affiliates and limits to three instances; if one is the subsidiary of another, if both are subsidiaries of the same corporation or if each of them is controlled by the same person or persons.
Where there is no Consideration
The Act does not exempt gifts of land from land transfer tax per say, but if on a conveyance there is no consideration in any form (either directly or indirectly), then the tax is Nil. This means that LTT would still apply to any registered mortgages that is conveyed with the land. The main exception to this is where land is transferred from a corporation to any of its shareholders or leases of over 50 years where the consideration is deemed to be the fair market value of the land based on section 1(1)(g) of the Act.
Other instances where no consideration applies include simple changes in legal tenure of land between same parties from tenancy in common to joint tenancy or vice-versa, when a conveyance of land is registered from the personal representative of a deceased to a transferee who is receiving the property in satisfaction of all or part of his/her beneficial interest, where a partitioning of land takes place and each or any of the “co-tenants” receive land equal in value to their original interest in the whole parcel, and where a dissolution of a partnership that owns land takes place and each or any of the partners receives land equal in value to their original interest in the parcel (as partnerships are treated as tenancies in common for purposes of the tax).
Exemptions under the Act
Certain Transfers between spouses
The Act exempts registration of any conveyance where the transferor is the spouse or former spouse of the transferee and where sufficient information is provided to enable the Minister to determine that either of the following conditions is applicable:
(a) the only consideration given for the conveyance apart from natural love and affection is the assumption of any encumbrance registered on the land described in the conveyance;
(b) the conveyance is in compliance with the terms of a written agreement pursuant to which the parties have agreed to live separate and apart or;
(c) the conveyance is in compliance with the directions of an order or judgement made by a court of competent jurisdiction.
Certain easements granted to oil or gas pipe lines
The act exempts any conveyance to or in trust for a pipe line company that conveys only an easement or right of way in, over, under or upon land, or that conveys only the right to acquire such as easement or right of way, and that is made for the purpose of enabling the pipeline company to construct or operate on the land described in the conveyance a pipe line for transportation or oil, gas, or other liquid and gaseous hydrocarbons and similar products.
Certain conveyances of family farms or family business corporations
Part of this exemption declares that LTT does not apply to a conveyance of land from individuals – each of whom is a member of the family of the other – to a “family business corporation”. In Upper Valley Dodge Chrysler Limited v. The Minister of Finance, the court considered transfer of real estate directly by the sole shareholder to the Corporation. Exemption 697 specified that the transfer be a “conveyance of land from an individual … to a family business corporation provided that .. (a) prior to such a conveyance, the land was used predominantly in the operation of an active business which was operated exclusively by an individual”. The majority of the court decided that Corporation fell within the meaning of the term “individual” for the purposes of this act even though it is in contravention of LTT Bulleting for Minister of Finance which specifically states that Corporations, even if considered a member of the family, are not “individuals”. It remains to be seen how the decision of the court fairs in the long run.
Other exemptions include disposition of land by an employee to employer, certain life lease interests, Hospital restructuring, Charity Reorganizations, certain transfers under the municipal water and sewage transfer act and certain acquisitions under the Toronto Islands Residential Community Stewarship Act, 1993.
Based on the foregoing, it is safe to assume that LTT is always payable unless the facts of the conveyance either fall under one of the regulated exemptions or result in nil taxes.
Ross Mirian, Esq., Barrister and Solicitor
Mahnoosh Montazeri, Articling Student