In the 2016-2017 Budget (the “Budget”), Quebec’s Finance Minister Carlos Leitão announced several changes to Quebec’s regime of transfer duties payable upon certain transfers of real estate pursuant to the Act respecting duties on transfers of immovables (the “Act”). These changes were ratified by legislation on February 8, 2017 and are applicable to all transfers of immovables located in Quebec which occur after March 17, 2016.
On November 9 of last year, the Government of Quebec tabled Bill n°146: An Act to give effect mainly to fiscal measures announced in the Budget Speech delivered on 28 March 2017 (“Bill 146”) which provides further clarification to these changes.
Changes Following the Budget
Prior to the Budget, the Act stipulated that that all municipalities must collect duties on the transfer of immovables from the date of registration of such a transfer in Quebec’s land registry. As a result of this wording, certain transactions were structured so as to avoid any registration with the land registry and therefore indefinitely delay any payment of transfer duties. Following the Budget, as of March 18, 2016, transfer duties are now payable as of the date of transfer of the immovable, regardless of whether the transfer is registered. Transferees of immovables now must either register the transfer or submit a declaration to the municipality where the immovable is located within 90 days of the date of the transfer. Failure to register or to declare will result in the imposition on the transferee of a duty equal to 150 per cent of the transfer duty for the immovable.
The amendments to the Act introduced in the Budget also revised existing exemptions to the obligation to pay transfer duties. For example, previous to the 2016-2017 Budget, transfers between two closely related legal persons were exempt provided that certain conditions were met concerning ownership by the related legal person of 90% of the voting shares or ownership by the related legal person of 90% of the fair market value of the issued and outstanding shares.
Since the Budget, these statutory exemptions have been tightened, creating a single test based on ownership of 90% of the number of votes attached to the issued shares (the “Voting Rights Exemption”). Furthermore, the Voting Rights Exemption must be maintained for 24 months following the transfer of the immovable. Failure to comply with the 24 month restriction period would result in an obligation to pay the applicable transfer duties. If the Voting Rights Exemption should cease to apply in the 24 months following the transfer of the immovable then a declaration to the municipality must be made and the transfer duties paid.
Additional changes were made to the Act pursuant to Bill n°122: An Act mainly to recognize that municipalities are local governments and to increase their autonomy and powers, which gave Quebec municipalities the autonomy to establish their own transfer duty rates, up to a maximum of 3%, for any tranche of a real estate transfer exceeding $500,000.
Further Changes Pursuant to Bill 146
Bill 146 further modifies Quebec’s transfer duty regime by:
- Removing the requirement to disclose the names of the members of any professional order who rendered services in connection with the transfer of an immovable when filing a notice of disclosure;
- Introducing exceptions to the requirement to produce a notice of disclosure when the Voting Rights Exemption ceases to be met in the context of the merger or dissolution of a legal person; and
- Relaxing the exemption rule applicable with respect to transfers of an immovable in the context of a succession.
Regarding the exceptions to the requirement to produce a notice of disclosure in the context of a merger or liquidation, pursuant to Bill 146 a transferee of an immovable whose transfer was exempt from the payment of transfer duties under the Voting Rights Exemption will not be required to pay the transfer duties that would have otherwise been payable in respect of the transfer if, at a particular time in the 24-month period following the date of transfer of the immovable, the transferor and the transferee that are parties to the transfer cease to be closely related legal persons due to:
- their amalgamation;
- the amalgamation of the transferor or the transferee with one or more legal persons, where the legal person resulting from the amalgamation is closely related to the transferee or the transferor 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