Effective February 18, 2016, the Ontario Government enacted “clarifying” amendments (the Amendments) to Ontario Regulation 70/91 under the Land Transfer Tax Act (the Act) to stop the perceived abuse of a de minimispartnership exemption from land transfer tax (LTT) in respect of certain unregistered transfers of a beneficial interest in land situated in Ontario. The Amendments apply retroactively almost 27 years, to dispositions of beneficial interests in land occurring on or after July 19, 1989.

In the administration of the Act, the LTT Branch of the Ministry of Finance (the Ministry) takes the position that a partnership is not a legal entity. Consequently, a disposition of land to a partnership is a disposition of land to the partners in proportion to their partnership interest. Similarly, a disposition of an interest in a partnership that owns land situated in Ontario is considered to be a taxable disposition of such land under the Act, subject to certain exceptions.

Prior to the Amendments, Regulation 70/91 provides a de minimis exception to LTT on a disposition of a beneficial interest in land arising as a result of a person acquiring an interest in a partnership, if the person acquiring the interest would not be entitled, during the fiscal year of the partnership in which the acquisition occurred, to a percentage of the profits of the partnership that is more than 5% of the profits to which the person would have been entitled at the beginning of the fiscal year. The Ministry had previously provided rulings to this effect.

While the Amendments preserve the de minimis exemption, the exemption will not apply if the partner who acquires the partnership interest is a trust or another partnership. The Ministry stated that the Amendments are targeted at complex real estate structures involving REITs and/or layer(s) of limited partnerships. The Ministry also stated that if a taxpayer had previously received a written ruling from the Ministry on or before February 12, 2016 that applies to a taxpayer-specific disposition of a beneficial interest in land that is a partner’s interest in a partnership, generally, the ruling would continue to apply.

As a result of the retroactivity of the Amendments, taxpayers who had relied on the exemption may now be considered to be non-compliant with obligations under the Act to file a return and remit LTT when due. Any taxpayer who failed to file a return as required would be liable for a penalty, when assessed, equal to 5% of the tax payable on the disposition, plus interest. In addition, any taxpayer who failed to deliver a return or who failed to remit the tax payable under the Act is guilty of an offence and on conviction liable to a fine of not less than 25% of the tax payable and not more than twice the amount of tax payable. The Ministry did not comment on the financial consequences of retroactive non-compliance.

Taxpayers affected by the Amendments may consider the grounds for challenging their legality, including the apparent creation of retroactive guilt of an offence under the Act.