The City of Montréal recently confirmed that it will take advantage of one of the new tools made available by the Québec government to allow the city to increase its revenues: a surcharge applicable to transfer duties. Effective January 29, 2010, a surcharge is being added in the calculation of transfer duties on immovables (real estate properties) in Montréal. Specifically, any amount above $500,000 will be subject to a special rate of 2.0% (the previous maximum rate was 1.5%).
The new measure applies only to immovables located in the City of Montréal and does not, therefore, affect those located in the demerged municipalities. It flows from an amendment to the Act respecting duties on transfers of immovables (R.S.Q., c. D-15.1) that was made at the end of 2008 by the adoption of An Act to amend various legislative provisions concerning Montréal (S.Q. 2008, c. 19), then known as Bill 22.
The surcharge came into effect following the adoption on January 25, 2010 of the City of Montréal's 2010 budget and the subsequent enactment of a specific municipal by-law, which came into effect on January 29th.
The table illustrates how the transfer duties are henceforth to be calculated, using the example of the transfer of an immovable for a consideration of $1,000,000.
Clearly, the higher the consideration, the greater the impact of the new surcharge. Accordingly, in the case of a transaction for a consideration of $5,000,000, the increase in transfer duties will be $22,500, while the increase will be $122,500 in the case of a transaction for a consideration of $25,000,000. In short, the increase represents about $5,000 for each additional $1,000,000 tranche of consideration.
In this context, it will be even more appropriate than in the past for real estate owners, whenever feasible, to maximize the use of holding entity structures for their immovables, so as to benefit as much as possible from the various transfer duty exemptions which the law provides.