Property Purchase Tax Act (Continued) #107

By Gerry Neely
B.A. LL.B

On July 10, 1987, the Ministry of Finance closed the loophole referred to in the second example in Column 106 by an amendment to the PPTA, rather than by regulation. The first example given in that column of the purchase by a husband and wife was intended to illustrate the exemptions available to related individuals. However, it was unintentionally misleading because it should have referred to the classifications of property which, when transferred between related individuals, are entitled to the exemptions.

While the list of exemptions was made available to the Boards in April for distribution to licensees, it has been suggested that listing the major and more commonly used exemptions in this column will provide a useful source of information to which licensees may refer. The safest approach in deciding whether tax is payable under the PPTA, is to assume that any disposition of real property, whether by way of sale, lease, foreclosure, quit claim, gift (whether during life or by Will), the creation of a life estate, an assignment, or by operation of law (as in an expropriation) will attract tax. Then, unless you are satisfied that you know the answer, see whether the disposition is exempt, or in the very rare instances, a non-taxable transaction to begin with.

The major exemptions are for a transfer between related individuals of a principal residence, or a recreational residence or a family farm.

Who falls within the definition of related individuals? A spouse, parent, child, grandparent, grandchild, great-grandparent and great-grandchild; a spouse of any of the above; the related individual must be a citizen or a permanent resident of Canada.

Spouse is defined to include not only a person married to another person, but someone living with another person as husband and wife who has lived with that person for a continuous period of at least two years.

The definition of parent has been widened to include a person who is a step-mother or step-father of a child, where a step-parent relationship is established by marriage between the step-parent and the mother or father of the child, or the step-parent and the mother or father of the child have lived together as husband and wife for not less than two years, although not married to each other.

Principal residence means:

• a parcel of land upon which there are improvements, which do not exceed 2.03 hectares in area, and
• the improvements are designed to accommodate and are used only to accommodate three or fewer families, upon which before the transfer the individual who is transferring his interest usually resided and used as his home.

An individual can have only one principal residence at a time.

Recreational Land means land:

• not exceeding 5 hectares in area,
• that has been classified as residential land under the Assessment Act, and
• has a fair market value of less than $200,000.00, and upon which, before the transfer, the individual who is transferring his interest resided on a seasonal basis for recreational purposes.

There are no limitations on the number of recreational residences an individual may own.

Family Farm means farmland that is:

• used, owned and farmed by one individual or by related individuals, or used and owned by a family farm corporation.

Family Farm Corporation means a corporation, the principal activity of which is farming farmland and all the shares of which are owned by related individuals. There appears to be no limitations on the number of family farms that may be owned by an individual, related individuals or a family farm corporation.

Transfers of a principal residence, recreational residence or a family farm by an individual into a trust created during his lifetime, or to his estate upon death are exempt only if the individual before the transfer or death could have otherwise met the requirements for an exemption. Exemptions in a trust or an estate are limited to one principal residence and one recreational residence.

Apart from these major exemptions, the more usual real estate transactions for which exemptions are available include the following:

A change from a joint tenancy to a tenancy in common and vice versa, provided there is no change in the persons owning the interest in the land, both before and after the transfer.

A transfer of a deceased's one-half interest in a joint tenancy, to the survivor.

A transfer of a vendor's interest in an agreement for sale to anyone other than the purchaser of the lands described in the agreement for sale.

A transfer to a purchaser under an agreement for sale, by the vendor when payment in full has been made to the vendor, if tax was paid by the purchaser when the purchaser bought under the agreement for sale. This exemption also applies to the assignee of the purchaser's interest in the agreement for sale.

Where default occurs under a vendor take-back mortgage or under an agreement for sale and by Court Order the vendor regains title. Any other court order or quit claim deed cancelling the mortgagor's or purchaser's interest in land is not exempt from tax for the mortgagee or vendor who takes title.

A lease with a term, of 30 years or less (the term of the lease includes the cumulative total of all options or right to renew the lease; and with respect to time-share ownership or time-share use plans the term is the number of calendar years during which the purchaser/transferee may for any part of a year occupy the land).

To a veteran from the Director, The Veterans' Land Act (Canada).

A transfer of property made as a result of a court order under the Family Relations Act, or a written separation agreement.

Transfers to a trustee of two or more properties whose owners intend to combine the properties for the purpose of subdivision, provided that each owner's proportion of beneficial ownership in the property remains the same both before and after the transfer. This same exemption applies from the transfer back to the owners by the trustee.

There are additional exemptions which in abbreviated form are found on the PPTA Return. The Land Title Office and any conveyancer will be able to provide you with a copy of the Return. If you have any doubts as to whether a transfer is taxable and if so whether an exemption applies, refer the potential purchaser/ transferee to his solicitor for advice.

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