Property Transfer Tax - Multiple Buyers and Exemptions #277
By Gerry Neely
A decision involving the Property Transfer Tax Act points to a way, when the facts are right, to reduce the amount of the total tax payable when there are multiple buyers. Three individuals bought one parcel of land in 1994 valued at $760,000, taking the fee simple title in their three names under one transfer. Instead of filing one Property Transfer Tax return, each buyer filed a separate return.
If this transfer had been a single transaction, the tax at 1% of the first $200,000, and 2% of the balance would have been $13,200. The buyers treated the transfer as three separate transactions, in which each purchased an undivided one-third interest in the property. The reduced tax the three buyers paid totalled $9,200. The Ministry of Finance issued an assessment for $13,200, an amount that must be paid within thirty days, even though the buyers filed an objection to the assessment.
Property Transfer Tax is payable upon an application to register a taxable transaction. The definition of a taxable transaction includes a transfer of an estate in fee simple. The Ministry of Finance argument was that the single transfer document constituted a single taxable transaction, regardless of how many names are registered on title. The judge accepted this argument, based upon the wording of the taxing sections in the Property Transfer Tax Act.
The reasons for judgment state that it was common ground amongst the parties that if the three buyers had filed three separate applications for transfer, three certificates of title would have been issued. Each buyer would then have been able to take advantage of the lower tax rate of 1 % on the first $200,000.
The basis for this agreement is found in Information Bulletin 2-93, Property Transfer Tax Act, where the Ministry agreed that the lower rate would prevail, where the buyers are different persons, none of them are related individuals and the interest taken by each buyer must be registered on a separate title number.
This appears to be the kind of stratagem which the Ministry used to consider a loophole, several of which have been closed, at least partially, through amendments. An example was the practice of registering an undivided one-half interest in the property, and then applying for registration of the other undivided onehalf interest in a week or a month's time. Now, if an application to register the second transfer is made within six months of the first, tax is calculated upon the combined fair market values of both transfers, as if there had been one single taxable transaction.
Again, if a person applies for registration of a partial interest in property and within six months, one or more individuals related to that person apply for registration of the remainder of the same property, the tax on the latter transfer is calculated as if there had been one transaction. (Anyone considering this should look at the definition of related individuals, a definition which includes 19 degrees of relationships ranging from great-grandparents, down through varieties of blood relatives and in-laws, to great-grandson-in-law.) It is in this area of related individuals, where the trust between transferor and transferee is unlikely to be misplaced, that transfers outside the six month period are likely to be made to save the 1% on the first $200,000.1
Similar limitations apply to multiple transfers among associated corporations.
There are rare occasions when a builder who takes a property in trade may take from the seller an executed transfer without the buyer's name added to it, in the hope that the payment of transfer tax can be avoided through a direct transfer from the seller to a buyer found by the builder. The builder runs the obvious risks of not being shown as the registered owner of the property.
The government may by regulation require a buyer, who is entitled to register a transfer in the buyer's name, but delays doing so, to pay tax as if it had been registered. It also has the power by regulation to tax a transfer which is not registrable in the Land Titles office. So far there are no regulations empowering the Ministry of Finance to do this.
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Legally Speaking column #274 incorrectly stated in the second line of the first paragraph, the word //unreasonable" which should be substituted for the word "reasonable". We are sorry for any confusion this error may have caused.
|1.||White Rock Realty v. Parklane Ventures (Meadowvale) Ltd., Provincial Court of British Columbia, Burnaby, B.C., February 5, 1996.|
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