Property Purchase Tax Act - Continued #116

By Gerry Neely
B.A. LL.B

The tax return which is filed under the Property Purchase Tax Act with transfer documents has been amended to require a purchaser to disclose the value of machinery, furniture, equipment and fixtures, which are included in the purchase price of non-residential property. "Fixture" is very broadly defined but does exclude "machinery, equipment or apparatus installed for the purpose of heating, air-conditioning, lifting of passengers or freight, lighting or sewage disposal in a building or structure."

The purpose of the amendment is to make this information available to the Social Services Tax Department to enable it to collect the six per cent sales tax on the value of this personal property.

There has always been an obligation under the Social Service Tax Act upon a purchaser to pay sales tax on the value of tangible personal property, as defined in the Act, and for the vendor to collect or to see to the collection of tax. For example, it is payable on the value of the appliances in a single family residence. The reason the Act is not enforced in these circumstances, is the same reason that no attempt is made to collect tax on the value of chattels sold through the classified ads. The tax is too small to warrant the cost of enforcement. Tax, however, is not paid on larger transactions, either because the purchaser is unaware of his obligation, or because the purchaser decides that his purchase is unlikely to be discovered.

Discovery will now be more likely since the information on the PPTA tax return will be available to the sales tax department. The fact that disclosure must be made means that the attention of vendors and purchasers and their legal advisers will be focused on their respective obligations under both Acts. The allocation of the purchase price among land, buildings and personal property will become more important. Licensees may be called upon to provide estimates of value and may do so in order to smooth the acceptance of an offer. However, unless a licensee is familiar with the pricing of the type of personal property which is being sold, the parties should be advised to obtain an independent appraisal where the value of the personal property is substantial. Licensees should be prepared to advise both vendors and purchasers of their respective obligations to see that sales tax is paid.

The phrase "non-residential property" is not defined and therefore creates uncertainty. If the intention of the amendment were to limit disclosure to sales of commercial property, including apartments, then a definition by regulation will be required to eliminate the uncertainty. The sale of an hotel or motel without any commercial space, such as a restaurant or gift shop, lies outside the definition of non-residential property. Does the addition of a gift shop, restaurant or other retail space change that? Perhaps the real question is, does it matter, since the tax is payable in any event, even if disclosure on the PPTA tax return cannot be enforced.

One reason why a purchaser may decide that it is preferable to pay the tax is that the Commissioner under the Social Services Tax Act, has the power to obtain judgment or file a certificate which has the effect of a judgment to collect the tax, interest on it, and penalty. The penalty is 25% of the sales tax where the failure to pay was willful, or 10% in any other case.

The current PPTA return may be used until March 31, 1988.

Licensees are reminded that where two or more people purchase property valued at more than $200,000.00, tax can be reduced if separate transfers of undivided interests are made to the purchasers. For example, the tax on a $500,000.00 purchase is $8,000.00 if title is transferred to A and B in one transfer. The tax is $6,000.00 if two separate transfers are made to A and to B, each of an undivided one-half interest. Trying to achieve this result by having A and B make separate identical offers is possible but should be avoided because of the complexity of the clauses required to protect the vendor against the default of one of the two purchasers. An offer to purchase containing the following clause should be sufficient: "The vendor agrees to sign separate transfers in favour of A and of B, each for an undivided one-half interest in the property."

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