Ontario Land Transfer Tax: Some Basics

The first general anti-avoidance rule relating to Ontario land transfer tax (LTT) was proposed in the 2014 Ontario budget, and received royal assent on July 24, 2014. The Ontario Ministry of Finance is concerned that some structures attempt to use Ontario regulation 70/91 of the Land Transfer Tax Act (LTTA) (a regulation exempting certain transfers from LTT, as discussed below) in a manner inconsistent with its intent. The ministry is also reviewing aggressive tax-avoidance structures and issuing assessments as appropriate.

Given the ministry’s enhanced focus on aggressive LTT planning, it is worthwhile to revisit certain rules relating to Ontario LTT, including some of the LTT exemptions available to taxpayers. Although the exemptions outlined below were enacted to provide fairness and practicality in applying LTT, an understanding of these rules will provide a high-level overview of planning opportunities that may be appropriate, depending on the circumstances.

In Ontario, LTT is generally triggered when there is a change of registered title to, or a change of beneficial interest in, real property situated in Ontario. Under both scenarios, LTT is imposed on the value of the consideration.

Often, real estate owners use nominee corporations to hold the legal title to land to maintain anonymity of ownership or to ease an administrative burden (in a joint venture context). When a purchaser acquires shares of a nominee corporation, legal title to the land is maintained by the nominee corporation; however, Ontario LTT applies if a purchaser acquires a beneficial interest in real property through, for example, a sale of the shares of the nominee corporation.

Although one cannot avoid Ontario LTT simply by using a nominee corporation, specific relief provisions in the LTTA exempt certain transfers from LTT:
  1. Interaffiliate deferral: section 3(9) of the LTTA allows unregistered transfers of land between affiliated corporations. This exemption is granted if the beneficial interest remains with the affiliated corporation for at least three years. The transferor is required to submit a deferral application along with security for the tax otherwise payable. The security is returned if and when the three-year holding period requirement is satisfied. The holding-period rule is intended to ensure that the exemption is not used to transfer land to an affiliated corporation whose shares are then sold to a third party in order to circumvent LTT.

  2. Amalgamation: for LTT purposes, an amalgamated corporation is considered to be a continuation of the predecessor corporations. If the predecessor corporations were affiliates before the amalgamation, then they are considered affiliates after the amalgamation. Thus, on the basis of the ministry’s published policy, Ontario LTT will not apply to land transfers that occur in the course of an amalgamation (Bulletin LTT-4, September 25, 1974).

  3. Mutual fund trust exemption: Ontario looks through a trust and imposes LTT at the beneficiary level. As a result, a purchase or sale of a trust unit triggers LTT to the extent that the trust holds real estate properties. This result would be problematic for mutual fund trusts such as real estate investment trusts; however, section 1(1)(b) of regulation 70/91 of the LTTA exempts transfers of mutual fund trust units from LTT.

  4. Partnership de minimis exemption: similarly, Ontario looks through a partnership and imposes LTT on the partners; this raises a concern when a change in partners gives rise to unintended LTT, especially when the change is insignificant. However, section 2 of regulation 70/91 exempts the transfer of a beneficial interest from LTT if it is an interest of a partner in a partnership and the partnership interest entitles the partner to 5 percent or less of the profits of the partnership.

Ontario LTT can be complex, and taxpayers need to be cautious when applying the LTT rules. In particular, taxpayers should be mindful of two common traps:
  1. When registered title is transferred for no consideration, LTT should generally not apply. However, an affidavit must be filed to support the assertion that no consideration applied, and the affidavit must contain a statement that no change in beneficial ownership occurred prior to the transfer of the legal title. (See “Guide to the Requirements To Evidence NIL Value of Consideration for Conveyances Involving Trusts—Land Transfer Tax Act.”)

  2. No deferral is available under section 3(9) of the LTTA if there has been a previous change of registered ownership to an affiliate corporation at any prior time.

For more information on the Ontario LTT, see Kathleen V. Penny, “Ontario/Toronto Land Transfer Taxes: A Primer on Related Party Transfers and an Update,” 2014 Ontario Tax Conference.

Henry Shew and Jonathan Newton
KPMG LLP, Toronto
[email protected]

[email protected]

Canadian Tax Focus
Volume 5, Number 2, May 2015
©2015, Canadian Tax Foundation