Several lawyers have contacted LIF advising that the Property Taxation Branch of the Ministry of Finance is considering applying the anti-avoidance rule in section 2.001 of the Property Transfer Tax Act (PTTA) to certain transactions. These transactions involve the re-registration of legal title to real estate into trust while claiming an exemption from property transfer tax (PTT). The transactions under review often involve a transfer of legal title to a related person, and then back to the original transferor in trust.
Here is an example of a type of transaction being scrutinized by the Ministry: John owns real estate and wants to transfer that property into a newly-settled trust (e.g., an alter ego or joint partner trust). That transfer may be motivated by bona fide estate planning reasons. John transfers legal title to his daughter, Jane (a “related individual” under the PTTA), and claims an exemption from PTT. Jane then transfers legal title back to John, in his capacity as trustee of the trust, and claims a further PTT exemption.
In the letters we have seen, the Ministry of Finance asks for an explanation of the reason for the title changes to determine if the transactions were undertaken or arranged primarily for bona fide purposes other than for the purpose to obtain a reduction, avoidance or deferral of PTT. The following excerpt from one such letter summarizes the Minister’s position:
…As you may know, had you directly transferred the Property from yourselves (in your personal capacities) to yourselves in the capacity as trustees of a trust, the exemption under s. 14(3)(b) of the PTTA [related individual-principal residence] would not have applied in full to the fair market value of the Property. This is because the definition of "related individual" for the purpose of the PTTA does not include oneself: s. 14(1) "related individual", and as decided in Fuller v. British Columbia, 1986 CanLII 1563 (BCCA). It is the administrator’s position that this direct transfer would have been taxable in respect of 100% of the fair market value of the Property. The "tax benefit" of the above-noted series of transactions is therefore the avoidance of tax on 100% of the fair market value of the Property… [Emphasis added]
If you advised your client or assisted them to implement transactions that are the same as or similar to the above, and your client informs you that they received such a letter from the Ministry of Finance, consider reporting to LIF so that we may help and provide you with additional support.
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