Law Times

PAGE 12 FOCUS November 3, 2008 • Law Times Land transfer tax tips and traps BY GRETCHEN DRUMMIE Law Times to examine transactions to deter- mine any weaknesses the govern- ment could potentially go after. That's just one of the "tips and W hen it comes to land transfer taxes, Maria Holder advises lawyers three exceptions: beneficial own- er to trustee; trustee to beneficial owner; and trustee to trustee, pro- vided that the beneficial owner is the same from the time the first trustee owns title. Leases that exceed a term of traps" the Toronto associate with Fraser Milner Casgrain LLP shared with others recently during a real etate seminar at her firm's office. "Land transfer tax is payable on fifty years are included under the land tax regime, she said. The 50-year period includes any re- newals or extension periods. "Mineral rights on a whole every conveyance of land tendered for registration, and every unreg- istered disposition of a beneficial interest in land unless it is spe- cifically exempted under the Land Transfer Tax Act," said Holder. Common examples include trans- fers of land, which includes build- ings, buildings to be constructed, fixtures and structures, and inter- ests therein, she added. "Also remember that some of [the] transactions that you may not necessarily identify with land trans- fer tax are transfers in beneficial interest," she said, noting there are are not captured at all, however if they're transferred in conjunction with surface rights then transfer tax is payable on that part of the consideration that is attributed to surface rights," said Holder. With respect to the taxation • +1.5 % on the amount in • +2.0% of the amount in excess • excess of $250,000 (for busi- ness properties); tions is the total LTT payable. Also, as a result of the mu- nicipal land transfer tax that was added in Toronto, there's an additional level of taxation that deals with properties in the city. Not only has the rate of land transfer tax increased, as of late we are seeing that the ministry is taking an even broader stance on taxation, said Holder. "We're seeing many of our cli- of $400,000 (residential only); The aggregate of these four por- rate in this province, Holder not- ed the rate is a percentage of the value of the property in Ontario based on a graduated scale: 0.5% on amounts up to and • • including $55,000; +1.0% on the amounts exceed- TitlePlus_LT_Nov3_08.qxd 10/27/08 11:11 AM Page 1 • +1.5% on amounts about ing $55,000 up to and includ- ing $250,000; $250,000 up to and including $400,000 (for residential); ents have been audited on their transactions," she said, adding there have been random audits and requests by the ministry to see the agreements of purchase and sales and related documents "in order to identify any sort of additional consideration that they can attribute land transfer tax and make you pay for it." The ministry is able to take this aggressive approach to LTT due to the broad definition of for the conveyance of land or interest in land. It's monies to be given or monies received." The second is the assump- tion of debt. "We see this most commonly in [vendor-take-back mortgages] VTBs," being when the transferee assumes debt for a credit in the purchase price. We also see this where there is a trans- fer to a relative for natural love and affection for nominal consid- eration but the property is encum- bered by a mortgage; LTT is paid on the value of the mortgage. The third is the benefit con- 'We're seeing on the ground in our firm, many of our cli- ents have been audited on their transactions,' says Maria Holder. the "value of consideration," upon which tax rates are based, said Holder. The definition in- cludes a wide number of trans- actions, which has three types of considerations, she noted. The first is cash or cash equivalent. Holder said this is the standard growth, sales prices, traditional consideration "that you or I get ferred as a part of the arrangement. Holder said all other consideration flowing to any person, provided that the consideration related to the transfer in some way. "The first sort of transaction the ministry is looking out for [is] 'related agreements which al- low for additional considerations.' So they're not only looking at the APS [agreement of purchase and sale] and just the language inside of the APS, but also related agree- ments," she said. "You see this most commonly in linked sales and construction contracts." Assaly and MNR "opened the floodgates to this interpretation of the act." She noted the courts will look at the degree of connection between the purchase agreement and the building contract to de- termine whether the two contracts are part of the same arrangement. "This sort of rationale also re- lates to property management agreements," she said. "In many of our transactions, vendors or related entities offer property management services as part of the original trans- fer in a side agreement and this is also [a] potential avenue under which the land transfer tax regime can tax you quite significantly." Holder advised to also watch for Built just for you Together we have all the tools The TitlePLUS® Program works with you to help protect your clients from title risks.1 assist you, through our legal services coverage2 result of an error or omission in your real estate transactions. To ensure your clients get the most comprehensive coverage in one policy, take a look at the TitlePLUS Program, your Bar-related® real estate partner! With the right tools we , by reducing the inconvenience of dealing with a loss as the relocation costs. "Land swaps on a whole are not taxable however we have an example where land trans- fer tax was attributable to reloca- tion costs where one of the parties in a land swap paid the additional relocation costs of the other." The second "more obscure av- enue which the ministry is now looking at are 'any vendor obliga- tions that the purchaser assumes.' This is now considered consider- ation . . . We see this most com- monly in transactions that involve environmental remediation post- closing, being as-is-where-is deals whereby the vendor sells property at a reduced price in exchange for the purchase assuming environ- mental remediation of the land post-closing," she said. "Now the ministry is attempting to tax not only on the price of the face value of the transfer itself, but also the cost and expenses incurred by the purchaser in order to remediate the land. And the ministry is being fairly aggressive in its approach and has been fairly successful." The "ministry now targets PROTECTION AS GOOD AS IT GETS 1-800-410-1013 2 Excluding OwnerEXPRESS® policies and Québec policies. ®TitlePLUS, the TitlePLUS logo, OwnerEXPRESS and LAWPRO are registered trademarks of Lawyers' Professional Indemnity Company. ®BAR-RELATED Mark is a registered Mark of North American Bar Related Title Insurers used by LAWPRO under License. titleplus.ca 1 Please refer to the policy for full details, including actual terms and conditions. The TitlePLUS policy is underwritten by Lawyers' Professional Indemnity Company (LAWPRO®). Contact LAWPRO for brokers in Saskatchewan, Manitoba, Alberta and Québec. 'related agreements which impose additional consideration and ven- dor obligations that the purchaser assumes,' and when you're drafting your transactions and when you're negotiating your transactions, it's important to examine them to identify any weakness which the ministry can seize on and poten- tially go after and attribute more land transfer tax than you other- wise would have thought." LT www.lawtimesnews.com

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