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Ontario Budget 2014 – Highlights – Limits on Ontario Land Transfer Tax Exemptions

Posted By: Bobby B. Solhi on July 28, 2014 at 12:36:27 in All

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Ontario Budget 2014 – Highlights 

Limits on Ontario Land Transfer Tax Exemptions

By: Bobby B. Solhi*

Now with a majority government, the Liberal party in Ontario has re-introduced its Budget for 2014.  There are a few proposed changes that we have highlighted below and that may be of great interest to those that are active in Ontario.

Limits on Ontario Land Transfer Tax Exemptions / Introduction of GAAR for Ontario Land Transfer Tax

Ontario’s Land Transfer Tax (LTT) applies to all transfers of land in Ontario, both registered and unregistered, with few exceptions.  The land transfer tax in Ontario is applied at the following rates:

Ontario Land Transfer Tax Rates

Ontario Land Transfer Tax Rates

There are some exceptions to the application of the land transfer tax in Ontario which include transfers between spouses, bare trusts, family farms and business corporations, and certain partnership interests.

The Budget outlined Ontario’s concern regarding aggressive tax avoidance structures and particularly those that (mis)use Ontario Regulation 70/91, made under the Land Transfer Tax Act, which in the Province’s view is being used in a manner that is inconsistent with the intent of the legislation.  In particular, the regulation provides what is called a “de minimis” partnership exemption that is intended to apply to small changes in partnerships that own land.

The Budget states that Ontario Land Transfer Tax Exemptions, and this one in particular, is not to be used as a vehicle to acquire land without payment of land transfer tax.

Ontario proposes to introduce a general anti-avoidance rule (GAAR) into the Land Transfer Tax Act, applicable to transactions that are completed after Budget day and transactions that are part of a series of transactions that is completed after Budget day.

The Budget provided that other legislative options to counter aggressive planning techniques to avoid the land transfer tax system are also under consideration.

GAAR is a powerful legislative tool that, if enacted, would allow the Province to challenge and disallow certain exemptions claims from land transfer tax on the basis that a transaction or series of transactions ran counter to the intent or spirit of the Land Transfer Tax Act and its Regulations when read as a whole.

Ontario currently has a GAAR for its corporate tax which, in theory, could be used to guide drafting of the GAAR provisions for LTT purposes.  Both legislation in turn would follow the Federal income tax rules on GAAR which has the most extensive jurisprudence to draw upon.

High Income Earners

The Budget proposes a 1% increase on personal income tax rates to those that earn more than $150,000 per year.

Personal Tax Rate Increase

Ontario Budget 2014 – Personal Tax Rate Increase

Phase-out of Small Business Deduction

The Budget proposes to phase out the SBD for corporations with taxable capital employed in Canada in the previous year of $10M and completely phased out when it is $15M.

Enhanced Audit Activty

Canada’s federal government administers and collects Ontario’s PIT, CIT, and the provincial portion of the HST on behalf of the Ontario government.  Other taxes in Ontario such as the Employer Health Tax, Tobacco Tax, Gasoline and Fuel Tax are administered by Ontario directly.

The Budget states that additional resources will be directed to compliance programs to collect more revenues for the Province’s coffers:  “the ministry will direct additional resources to its Flexible and Integrated Risk System (FAIRS) program to identify high-risk audit cases across several tax statutes and expects to generate an additional $10 million in tax revenue annually. Cumulatively, the new compliance activities introduced over the past three years now contribute an additional $75 million annually in tax revenues.”

*Bobby B. Solhi is a partner with TaxChambers LLP, a boutique tax law firm in Toronto, Canada.  Bobby can be reached at bobby.solhi@taxchambers.ca. The views and opinions are those of the author and do not necessarily represent the views and opinions of TaxChambers LLP. The information contained herein is general in nature and based on authorities that are subject to change. Applicability to specific situations is to be determined through consultation with your tax adviser.

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