1. Simon Thang, Thorsteinssons LLP
Commercial Real Estate Tax Issues: GST/HST, Withholding Tax, Land Transfer Tax
Simon Thang, Thorsteinssons LLP

2. Topics 1. GST/HST 2. Withholding Tax 3. Land Transfer Tax
Collection obligations, exemptions
2. Withholding Tax
Non-resident seller & purchaser obligations, clearance certificates
3. Land Transfer Tax
Value of consideration, partnerships

3. GST: Collection Obligations
Who is responsible for the GST/HST?
Seller normally charges and collects GST/HST.
However, purchaser must self-assess GST/HST on sale of real property if:
Purchaser is registered (exception if individual buying residential property or cemetery plot), (Excise Tax Act, 221(2)(b)); or
Seller is non-resident (221(2)(a)).

4. GST: Self-Assessment How to self-assess the GST/HST?
If purchaser acquires primarily for use in commercial activities (e.g., making taxable supplies), report tax on GST return for the period and claim input tax credits (“ITCs”) on same return.
Cash flow benefit to purchaser.
Otherwise, purchaser reports and pays tax on Form GST 60.

5. GST: Purchaser Must be Registered
Self-assessment under 221(2)(b) only applies if purchaser is registered.
Otherwise, seller must charge & collect tax.
Reps, warranties, indemnities re: registration.
Check online GST registry.
Registered means actually registered, not merely required to be registered (“registrant”).
Beware if purchaser is agent/bare trustee.

6. GST: Example

7. GST: Residency
Residency of seller for self-assessment under 221(2)(a) based on:
Common law rules, e.g., central mind & management.
ETA and Income Tax Act deeming rules.
Deeming rule (132(2)) based on Canadian permanent establishment is ignored.

8. GST: Exemptions & Misconceptions
Sale is not necessarily exempt because seller does not charge tax due to 221(2).
Purchaser should remember to account for applicable tax, especially if not acquiring exclusively for use in commercial activities.
Do not assume vacant land is exempt.
Many conditions must be met, e.g., sale by individual, restrictions on severance.

9. WHT: Income Tax Withholding
Non-resident seller may have Canadian income tax liabilities on disposition of Canadian property.
To facilitate compliance, section 116 regime for notification, clearance certificates, withholding & remittance by purchaser.
“Taxable Canadian Property.”
Withholding tax rate of 25% (capital real property or 50% (non-capital and depreciable real property).

10. WHT: Notification by Non-resident
Non-resident vendor required to file notification with CRA within 10 days of disposition.
Non-resident vendor can also file notification in advance.

11. WHT: Clearance Certificates
Purchaser normally required to withhold tax and remit to CRA within 30 day deadline.
If non-resident files notification and pays amount/provides security to CRA on account of tax liability, CRA required to issue clearance certificate.
If certificate issued, purchaser is generally not required to withhold (unless the price has increased).

12. WHT: Comfort Letters CRA often cannot process notification in time.
Therefore, administrative practice of issuing “comfort letters” to permit purchaser to delay remittance past normal deadline while processing.
Purchaser still required to withhold, but funds placed in escrow until certificate issued.

13. WHT: Other Exceptions
Purchaser not required to withhold if, after reasonable inquiry, there is no reason to believe seller is non-resident.
Treaty-protected property may also be excluded.
Purchaser required to provide notice within 30 days in some cases.

14. LTT: Overview
Applies to registered conveyance (s. 2) and to disposition of beneficial interest (s. 3).
Graduated rates based on value of property.
Anti-avoidance rule where multiple transfers of same property for purpose of benefiting from graduated rates.
Parallel municipal transfer tax for City of Toronto.

15. LTT: Example

16. LTT: Value of Consideration
LTT applies to “value of consideration.”
Includes:
Sale price or consideration given by or on behalf of purchaser;
Any liabilities assumed by or on behalf of purchaser; and
Any benefits conferred directly or indirectly by purchaser.
Deeming rules for value in some cases.

17. LTT: Construction/Service Contracts
Value of consideration is broadly defined, not necessarily equal to purchase price. Review definition carefully.
Value of construction agreement linked to sale of land may be subject to LTT.
Value of services agreement linked to sale of property may be subject to LTT (Re Ontario Ltd. and Minister of Revenue (1987), 59 OR (2d) 25 (HCJ).

18. LTT: Exemptions
LTT does not apply to certain inter-company unregistered dispositions of beneficial interest
LTT is deferred and then cancelled.
Filing, security, and holding period requirements.
But note LTT applies if subsequently registered.
LTT does not apply to certain trust transfers
Beneficial owner to bare trustee.
Bare trustee to beneficial owner.
Bare trustee to another bare trustee for same beneficial owner.

19. LTT: Partnership Exemption
Partnership exemption where ≤5% increase in partnership interest in fiscal year.
Allowed LTT-free transfers using layers of limited partnerships and trusts, due to “look through” to ultimate investor.
No longer applies if person acquiring interest is another partnership or trust.
Change retroactive to 1989 – potential liability for past transfers.

20. Questions?
Simon Thang