Law Times

www.lawtimesnews.com Law Times / January 21, 2008 Page 11 FOCUS Few have the stomach to slug it out in court R eal estate shoppers dis- heartened by Toronto's new land-transfer tax (LTT) levies likely won't be look- ing to the courts for relief. Not even large property developers, it seems, have the stomach to slug it out with the Ministry of Finance on any type of LTT issue. "Land-transfer-tax cases rarely go to court, because the deal has to be absolutely enormous to make the legal costs worthwhile," says Colin Stevenson of Toronto's Stevensons LLP. "So the govern- ment gets away with a lot." That's why the Court of Ap- peal's November decision in Woodbine Cachet West Inc. v. Min- ister of Finance has garnered some attention. Unfortunately, the tax- payer lost, doing little to encour- age individuals or businesses to take on the government. The case arose from 404 Woodlands Business Park's limited ownership of certain properties. Woodlands held the property as bare trustee for two groups of corporate beneficiaries, one of whom owned 69 per cent ("majority group") and the other owned the remaining 31 per cent ("minority group"). Woodlands defaulted on a mortgage held by the Bank of Nova Scotia, which exercised its power of sale and sold the land to Woodbine Cachet for $20 mil- lion. Woodbine acquired the land as trustee for the majority group. In these circumstances, the agree- ments between the owners en- titled the majority group to 100 per cent of the beneficial interest in the land. Woodbine took the position that the sale had transferred only the interest of the minority group to the majority, and that land- transfer tax was payable only on $6.172 million, the amount re- flected on the transfer deed. The minister assessed the tax on the entire purchase price of $20 million. Woodbine appealed to the Superior Court of Justice, but Justice James Spence dis- missed the application. Woodbine, represented by Stevenson, appealed to the Court of Appeal. A panel composed of Associate Chief Justice Dennis O'Connor, sitting with justices Eileen Gillese and David Watt, upheld Spence's decision and "fully" endorsed his reasons. The key to the case, Spence had observed, was that the sale was effected through the power of sale. By granting the mortgage to the Bank, Woodlands had re- tained only its interest in the eq- uity of redemption. The power of sale extinguished that interest, because the bank acted for its own benefit and not as agent for Woodlands or anyone else. "The purchase price agreed in the agreement of purchase and sale is $20 million," Spence wrote. "On the evidence, [Woodbine], as trustee for the 69 per cent group, undertook a mortgage obligation (to the bank) which includes the $20 million that is referable to the sale transaction. "The value of the consider- ation for land transfer tax is ac- cordingly $20 million." As the Court of Appeal saw it, it was clear that Spence had based his reasoning on s. 2(1) of the Land Transfer Tax Act — al- though he did not expressly refer to the section. Section 2(1) of the act makes tax payable on the "value of the consideration." Spence had found that the "gross sale price" was the value of the consideration given for the conveyance. "He was correct in holding that land transfer tax was to be calculated on that basis," the ap- peal court concluded. Dona Salmon, the govern- ment lawyer who represented the ministry, says the Court of Appeal's ruling is consistent with the case law. "Everything turned on wheth- er the sale followed on the power of sale," Salmon told Law Times. "And it did, because the bank clearly acted under the power of sale and clearly acted in its own interest." Stevenson says that know- ledgeable members of Ontario's real estate bar disagree with the court. "If you're in a joint venture with partners, you'd better have a mechanism in the joint venture agreement to get rid of them," he says. "Otherwise, if you're forced to rely on the mortgagee and a power of sale, you'll be liable for land-transfer tax on the value of the entirety of the joint venture's interest." Stevenson says the lack of LTT jurisprudence encourages "land-transfer grabs" by the gov- ernment. By way of example, he cites the case of a builder who buys multiple lots from a developer. "Normally, the agreement of purchase and sale requires the developer to get the subdivisions approved and to put in services and roads before the transfer of the lots to the builder takes place," Stevenson says. "Any builder would say that the value of the lots for LTT is what the builder paid for them." According to Stevenson, the ministry has taken the position that builders calculating LTT had to add the value of services and roads to the stated purchase price. "I know that the government backed down in the case of a couple of builders," he says. "But I don't know what's happening generally." What Torontonians do know, however, is that they're paying ever more LTT. It's a shame that, from the government's perspec- tive, it's never enough. Printing & Graphic Services Dye & Durham is your one stop print production solution offering a wide range of printing processes for runs of any size. We are a FSC Certified Printer, making a commitment to responsible forestry. We are a one source supplier offering you office & furniture products, corporate promotional products, legal specialty products, printing & graphic services, corporate supplies and search & registration services. dyedurham.ca • 1-888-393-3874 • Fax: 1-800-263-2772 Choose Dye & Durham your ONE source supplier W e ' r e a C a n a d i a n C o m p a n y DD LT GRLBBD-01 Print bw 1/2/08 3:59 PM Page 1 Law Times #MS07-06B – 7-7/8" x 4-7/8" Get Our Environmental Law Specialists on Your Team! 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