On December 20, 2017, the Quebec Department of Finance published its end-of-year bulletin, Information Bulletin 2017-14 (Bulletin). Among the measures announced by the Department of Finance was the introduction of an exemption from the payment of duties on transfers of immovables for partnerships. As a result, transfers of immovables made after December 20, 2017 that involve a partnership may be exempt from the payment of transfer duties under certain conditions. The exemption given to partnerships is similar to that given to corporations. However, the Bulletin only describes the principle measures behind the new exemption. The details and scope of the new exemption will only be known once the proposed legislation is made public, likely sometime this year.
Other than a few rare exceptions where the courts adopted a broader interpretation and allowed an exemption from the payment of duties on transfers of immovables when an immovable is transferred to a partnership in a context not involving a significant change of ownership (see Doucet c. Saint-Jean-sur-Richelieu (Municipalité de), Statour c. Bromont (Ville de) and Polyclinique médicale Fabreville s.e.c. c. Laval (Ville de), which was quashed by the Court of Appeal in 2007), no exemption from the payment of transfer duties was available when a partnership was involved in the transfer of an immovable. Until recently, any attempts to persuade the Department of Finance to introduce an exemption for partnerships were unsuccessful.
This is an overview of the exemption for partnerships as described in the Bulletin.
The Bulletin states that the Act respecting duties on transfers of immovables (Act) will be amended to grant an exemption from the payment of duties on the transfer of an immovable involving a partnership, where the percentage of a partner of the partnership (who is either the transferor or the transferee of the transfer) of the income or losses of the partnership is at least 90 per cent. No other details are given. How this percentage interest is to be determined and the cases in which the percentage interest will be met should be indicated in the upcoming legislation. Although the Bulletin does not say so, it might seem that the transfer of an undivided right in an immovable will also be eligible for the exemption.
SITUATIONS COVERED BY THE EXEMPTION
The Bulletin provides that the following transfers of immovables may be exempt from the payment of transfer duties:
- A transfer made by a transferor who is a natural person to a transferee that is a partnership if, immediately after the transfer, the transferor’s share of the income or losses of the partnership is at least 90 per cent
- A transfer made by a transferor that is a partnership to a transferee who is a natural person if, throughout the 24-month period immediately preceding the transfer, the transferee’s share of the income or losses of the partnership is at least 90 per cent
- A transfer made by a transferor or a transferee that is a partnership.
In the second case, if the partnership was constituted less than 24 months before the transfer of the immovable, the exemption from the payment of transfer duties will only be granted if the exemption condition is met throughout the period that begins on the date of constitution of the partnership up to the moment immediately preceding the transfer.
In the third case, the Bulletin states that the current exemption for closely related corporations will apply, subject to replacing the condition relating to voting rights by a condition concerning the percentage of income or losses of the partnership.
Once again, although the Bulletin is unclear in this regard, it is believed that the exemption described in the third case will cover the situation where the transferor or transferee is a partnership. The transfer of an immovable by a partnership to its corporate partner, so long as it meets the condition concerning the percentage of income or losses of the partnership, should therefore also be covered by the exemption. This interpretation is based not only on the description in the Bulletin of the three transfer situations aforementioned but also on what the Bulletin states about the disclosure mechanism, which could lead to the payment of transfer duties where the exemption condition relating to the voting percentage is no longer met; this mechanism will be adjusted to apply to a partnership involved in a transfer. As mentioned below, the Bulletin covers not only transfers involving two partnerships but also transfers involving a partnership and a corporation.
The Bulletin does not mention how the provisions of the Act setting out how two corporations are closely related will be adapted to partnerships. The Bulletin is worded to imply that the scope of the provisions for determining whether two partnerships are closely related will be similar to that for closely related corporations.
Notice of Disclosure Required
The Act currently provides that the transferee of an immovable whose transfer was exempt from the payment of transfer duties must notify the municipality where, during the 24-month period following the date of transfer of the immovable, the exemption condition concerning the percentage of voting rights ceases to be met. In this situation, the exemption is withdrawn and the transfer duties become due and payable.
The Bulletin states that the disclosure mechanism will be broadened so it applies to the transfer of an immovable involving a partnership. The transferee of an immovable will therefore be required to disclose the cessation of the exemption condition concerning the percentage of income or losses, where, in the 24-month period following the date of transfer of an immovable, this condition ceases to be met in the case of the transfer of an immovable made: by a transferor who is a natural person to a transferee that is a partnership, between two partnerships and between a partnership and a legal person.
Notice of Disclosure No Longer Required
The Bulletin also states that the exceptions to the requirement to file a notice of disclosure, which was introduced on July 13, 2017 (see our September 2017 Blakes Bulletin: Quebec Transfer Duties on Immovables: Recent Developments) and incorporated into Bill 146, which was introduced on November 9, 2017 and assented to on December 7, 2017 (2017 chapter 29), will be amended to introduce exceptions to the requirement to file a notice of disclosure where the exemption condition concerning the percentage of partnership income or losses cease to be met in the 24-month period following the date of transfer of the immovable.
As a result, a partnership asking for an exemption in the case of a transfer from a natural person, which ceases to meet the percentage condition within 24 months following the transfer, will not have to file a notice of disclosure with the municipality if the condition is no longer met due to the dissolution of the partnership or the death or bankruptcy of the natural person or the institution of protective supervision in respect of the natural person.
The same will apply where an exemption is requested for the transfer of an immovable between two partnerships or a partnership and a corporation. A notice of disclosure will not be required if, at a particular time in the 24-month period following the date of transfer of the immovable, the transferor and the transferee involved in the transfer cease to belong to the same closely related group due to:
- The amalgamation of the corporation that is the transferor or the transferee, as the case may be, with one or more corporations, where the corporation resulting from the amalgamation is closely related to the transferee or the transferor, as the case may be, immediately after the amalgamation and throughout the remainder of the 24-month period following the date of transfer of the immovable, or
- The dissolution of the transferor or transferee.