The Québec 2016-2017 Budget delivered on March 17 announced a number of important changes to the province’s land transfer duty regime.
The most important change relates to the event triggering the exigibility of the duties. Previously, the Act respecting duties on transfers of immovables provided that the duties became exigible only upon the transfer’s registration. In other words, the payment of the duties could be postponed indefinitely by not registering the transfer of the immovable. The Budget provides that the Act will be amended so that duties will become exigible as of the date of transfer, regardless of registration.
The Act will also require transferees to notify municipalities of any unregistered transfers. A penalty equal to 150% of the duties, plus interest, could be levied where the notification is omitted. The transferee paying the duties following the notification will not be required to pay them again if the transfer is subsequently registered.
The second important change relates to the exemption for transfers between natural persons and corporations of which the natural person owns at least 90% of the full voting rights shares, or representing 90% of the fair market value of a corporation, and to a similar exemption applicable to transfers between “closely-related” corporations. The Act will be amended so that it will now be necessary for 90% of the votes of the relevant corporation to be held by the natural person or parent corporation. It will no longer be sufficient for the natural person or parent corporation to own shares representing 90% of the fair market value of the subsidiary corporation.
The third important change also relates to the above-mentioned exemptions. Where a transfer is made by a transferor that is a natural person to a transferee that is a corporation, or where the parties to the transfer are closely related corporations, the Act will be amended to introduce an obligation to maintain the exemption condition (i.e. holding of the requisite number of votes to qualify for the exemption) for at least 24 months following the transfer. If the exemption condition ceases to be met at any point during that period, the transferee will become liable for payment of the duties that would have been payable had the exemption not been applicable on the date on which the exemption condition ceased to be met. The Act will also require the transferee to notify the municipality if the exemption condition ceases to be met during the 24-month period. Failure to notify will lead to the 150% penalty. Where the transferor is a legal person and the transferee is a natural person, the requirement will be to maintain the exemption condition for a minimum period of 24 months immediately preceding the transfer.
In view of the above amendment, the anti-avoidance rule in section 1129.29 of the Taxation Actwill be repealed. To apply, this rule required both an acquisition of control of a transferee corporation within 24 months of a transfer and a reasonable conclusion that the transfer was made in contemplation of such acquisition of control. Under the new rules, it will no longer be sufficient that control is not acquired, and taxpayers will not be able to argue that the anti-avoidance rule does not apply because the purpose test has not been met.
The changes will apply to transfers made after March 17, 2016. The Budget does not describe any grandfathering relief for transfers of immovables agreed to, but not closed, before that date.