BC’s Property Transfer Tax Act (“PTTA”) currently taxes only registered transfers of realty. In other words, it essentially taxes transfers of legal ownership, but not transfers of beneficial ownership. Numerous BC governments have for years considered expanding the scope of the PTT to include transfers of beneficial ownership – without substantive action.
Recently, however, there has been word of possibly significant realty-related tax changes to be proposed in the upcoming provincial budget, which will be released tomorrow. An expansion of the PTT is not unthinkable, given that current Premier John Horgan put forth a bill himself in 2016 seeking to tax the disposition of a beneficial interest in land.
Proponents of such an expansion often cite Ontario’s Land Transfer Tax Act (“LTTA”) as a model. Indeed, the LTTA does impose tax on dispositions of beneficial ownership. Some of the components in Premier Horgan’s 2016 bill mirror provisions in the LTTA. For example, the language imposing tax on transfers of a beneficial interest in the bill is identical to the language in paragraphs 3(1)(a) and (b) of the LTTA. Exclusions for leases and certain other transfers are also identical.
There are, however, crucial differences between the LTTA and the bill. One component missing from the bill, which is also absent from the current conversations surrounding legislative amendments to the PTTA, is tax relief for transfers of beneficial interest in realty between affiliated corporations, which appears prominently in the LTTA. The rationale behind the exemption is that the tax should not apply where beneficial ownership is retained within a single closely-held corporate group and is merely transferred among its members.
The deferral-and-cancellation scheme in the LTTA is intended to address this issue. Under the LTTA, upon transferring beneficial interest, the transferee corporation may apply to have the tax deferred. Though the tax is deferred, the transferee is required to post security. Then, provided that certain conditions are met (e.g. the transferee and transferor remain affiliates), the tax is ultimately cancelled three years later, rendering the transfer between the affiliates effectively exempt.
Any amendment to the PTTA that would impose the tax on a transfer of beneficial ownership should not be made haphazardly. Such an amendment would need to be joined by, among other things, a mechanism to relieve the tax where the beneficial ownership is transferred to an affiliate.