Property Purchase Tax Act #106

By Gerry Neely
B.A. LL.B

We can expect publication in late July of regulations to carry out the intent of this Act. These regulations may:

• list transactions that are to be taxed even though the interest being sold is not capable of being registered in the Land Title Office, and
• try and tax the value of real property owned by a Company which amalgamates with another Company. At the present time, the Land Title Act treats an amalgamation as a change of name only and therefore not taxable under the PPTA.

The regulations probably will set the period within which a person entitled to register for example a Transfer in Fee Simple in his name, but who chooses not to register, is required to file a return and to pay the tax that would otherwise have been payable at the time of registration.

Since the Act now contains transitional provisions, it is probable that transactions entered into before the regulations become law will not be taxable. However anyone contemplating a sale or change of ownership that does not appear to be taxable, or if it is taxable, is taxable at the lower 1% rate, should consider now completing such transaction before the anticipated date of publication of the regulation. The interesting question is whether the regulations will try to prevent structuring a sale so as to reduce the 2% tax on the purchase price in excess of $200,000.00, to the 1% rate that applies up to $200,000.00.

The question illustrated by the following examples, is how many slices of the purchase price are required to reduce each slice below $200,000.00?

• Husband and wife decide to buy a $1,000,000.00 property. The tax, if the husband and wife take title by one transfer, is $18,000.00. If they take title through a transfer to each of them of an undivided 1/2 interest, each valued at $500,000.00, the tax is $16,000.00. If they provide that title is to be transferred to them and their three adult children, by five separate Transfers, each of an undivided 1/5th interest valued at $200,000.00, the tax is $10,000.00. The three children transfer (the parents hope) the 60% interest they have in the property, to their parents. This second transfer is exempt from PPTA tax because they are related individuals.
• An individual purchases an apartment block for $5,000,000.00 and takes title through 25 separate Transfers, each of an undivided 1/25th interest valued at $200,000.00. Tax is $50,000.00 instead of $98,000.00. The individual then applies to consolidate all of the titles.

Yes, there will be additional legal and land title office charges, but they are not significant when compared to the tax saving. The Land Title Office charge for the registration of a Transfer of an Estate in Fee Simple is now only $25.00.

At the time in June when this column is being written, there appears to be nothing specific in the Act to tax these transactions at the 2% rate. Since the PPTA is a taxing statute and therefore is to be strictly interpreted, the extent of the tax savings makes a subsequent challenge worth risking.

One point to remember is that grandfathered transactions involving written interim agreements or options to purchase made before March 20th 1987, are only entitled to the transitional tax of 1/10 of 1% if the application to register the Transfer is made before December 31, 1987.

If this Act stays with us long enough, a licensee's lack of familiarity with how the transaction might be structured to avoid or minimize PPTA tax MAY result in an action for negligence. There probably will be over time, sufficient amendments to the Act, additional regulations and advance rulings, to justify starting and maintaining a separate PPTA file.

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