Law Times

Law Times • may 15, 2017 Page 13 www.lawtimesnews.com real estate New land tax regulations mean more compliance BY DALE SMITH For Law Times B oth the province of On- tario and the federal government have intro- duced a swath of new compliance laws around land transfer taxes, registration of corporate ownership interest in land, the disposition of personal residences and a speculation tax for non-residents. Real estate lawyers say that the new reporting requirements will mean more work in ensur- ing that their clients are in com- pliance, and those lawyers who don't keep up with the changes could find themselves being li- able for negligence. "The implementation was painful because it was very quick, but that's how these things are when you have a new tax come in," says Leslie Kirk of Kirk Law in Ottawa. "There were two parts to the changes — the Non-Resident Speculation Tax in the Great- er Golden Horseshoe Area; the other is information-gathering changes. For real estate lawyers, it adds a layer of extra questions of things we need to find out from our clients so that we can make sure that the tax does not apply, or if it does apply, that we're ready for it." Kirk says that lawyers were given about eight days' notice with regard to the informa- tion-gathering changes and a single day notice of the NRST change, which meant a scramble for lawyers to educate staff and change their processes. Many of the changes are information gathering by the province and federal govern- ment as they look for policy solutions to what is deemed a crisis of affordable housing, es- pecially in Toronto. Other changes include a doubling of the Land Transfer Tax refund for first-time home- buyers in the province and a change to the federal tax laws that require people to document on their income tax return when they sell their principal residence. The Non-Resident Specula- tion Tax, while it deals mainly with the Greater Toronto Area in terms of those who are sub- jected to it, requires that any transfers of land in Ontario must now contain a statement expressly acknowledging that they have considered whether the NRST applies. "It's unclear exactly how they're going to enforce this," says Jeff Levy, managing partner of Levy Zavet PC in Toronto. "This property informa- tion form now, pursuant to this change, requires us to report in- formation on the true owners of the property — the trustees, the beneficial owners, people hold- ing properties in trust for others, going on title together with others to qualify for a mortgage even though they're not owners. It requires lawyers now to ask more questions, get more details. It's unclear how far we have to go." Levy notes that the provincial attorney general has warned that there would be penalties for law- yers who have this knowledge but fail to fill out the informa- tion, which has put the real es- tate bar on guard as there is no case law or interpretation as to what knowledge means and how far they need to go to get the in- formation. Because so much more in- formation is required upfront, Levy says, it adds to the burden of lawyers advising their clients on how to declare the property. "How many hats can a real estate lawyer put on?" Levy asks. "We're not tax lawyers, we're not accountants; they don't tell us their portfolio and their af- fairs to that extent where we could advise them. There's no f lexibility after the fact, and to what extent are we responsible to our client to make sure that they understand what decisions they need to make now when they buy a property?" Another of the changes in- volves amendments to the Busi- ness Corporations Act (On- tario), which stipulates that On- tario corporations that have an interest in land must have that information updated at its regis- tered office. "If the registered office hap- pens to be the lawyer's office, which happens in some cases, you'd have to make sure that it's complied with," says Abraham Feinstein, counsel with Soloway Wright LLP in Ottawa. "If you're acting for corpor- ations that own considerable land holdings, that would be an onerous task to put together and document that." Kirk says the questions around those corporations can get tricky because there are questions about trusts, manage- ment and control, and the guide- lines are not clear for all of those questions about how much due diligence a lawyer has to do. "When these changes first came out, there were questions as to who is making these state- ments — is it the client or is it the lawyer?" says Kirk. "If a false statement is made, who are the penalties going to fall on?" Kirk says it has become clear that the onus is on the client, but he adds that lawyers need to be duly diligent so that while they can believe their clients and not have to test everything they say, if issues arise that a reasonable person would think to ask more questions, lawyers are obligated to do so. Levy notes that if a property is owned by a corporation, the forms now ask if all of the dir- ectors are Canadian residents, what percentage are foreign na- tionals, whether they know what percentage of the shareholders are foreigners, whether those for- eigners or nationals have control — all information that doesn't exist in corporate databases. There were also questions as to what lawyers should be get- ting clients to sign with regard to the information-gathering por- tions of the changes. "They have us go to a separ- ate website, plug in the identifi- cation number for the property and answer all of the questions," says Kirk. "We submit that it pops out with a confirmation number, and that confirmation number is what we put into the registered document. The answers to the questions aren't public, so that's good, but we don't necessarily know what this website is like, so that's a minor concern. Where is that information going, what exactly are they doing with it and how secure is it?" There is also no way to save the form so that it can be re- viewed with clients before send- ing it, nor is there any way to have clients sign off on it, which presents added hurdles to law- yers. Any changes need to be submitted as a separate form. Levy adds that the added ad- ministration means an addition- al 20 to 30 minutes of focused time to complete the forms prop- erly, and if there are multiple names, co-tenants or partner- ships, it adds to the time needed. Feinstein notes that Soloway Wright has opted to have its cli- ents sign an affidavit declaration to state that the information provided is true and that the firm has properly explained the reporting requirements, so that clients can't come back in several years and say they weren't aware of the issues if problems arise. "There's a lot of reporting that has to be done, and the bottom line for lawyers is that they've got to make their cli- ents aware of the various things that need to be reported on the documentation filed with the province," says Feinstein, who emphasizes the need for lawyers to protect themselves. "The bottom line is that law- yers have to inform themselves as to what these new develop- ments are and inform their clients and comply, because non-compliance would mean that their client would be on the hook, and lawyers don't want to be in a position where they ha- ven't informed their clients." LT or visit titleplus.ca Untitled-2 1 2017-05-09 8:44 AM Leslie Kirk says the implementation of new reporting requirements by the federal gov- ernment and provincial government was 'very quick.' It's unclear exactly how they're going to enforce this. Jeff Levy Fresh Canadian legal news and analysis Get More Online CanadianLawyerMag.com

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