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Introduction of Exemptions From the Payment of Transfer Duties on the Transfer of an Immovable Involving a Partnership

Fasken
Reading Time 4 minute read

Tax Bulletin

On December 20, 2017, the Minister of Finance published an Information Bulletin (2017-14, dated December 20, 2017) indicating that amendments would be made to the Act respecting duties on transfers of immovables (the “Act”) to provide an exemption from duties (“Duties”) for transfers involving partnerships made after December 20th, 2017.

Duties are imposed on the transfers of immovables in Québec, unless an exemption applies.

The Act provides exemptions from the payment of Duties in certain cases, such as, for example, where the transfer of an immovable involves a transferor or a transferee that is a legal person.

However, currently no exemption from the payment of Duties applies if a transfer is made to or from a partnership.

Québec has decided to provide an exemption from the payment of Duties on the transfer of an immovable involving a partnership, in circumstances similar to those for legal persons (i.e. for transfers between closely related legal persons).

The proposed amendment will provide for an exemption from the payment of Duties on the transfer of an immovable involving a partnership, where the percentage of a partner, that is the transferor or the transferee of the transfer, of the income or losses of the partnership is at least 90%. This, presumably, includes transfers by or to corporations and partnerships.

New exemptions from the payment of transfer duties  for individual

Currently, only a very limited exemption exists for transfers involving natural persons.

An exemption from the payment of Duties with respect to the transfer of an immovable made by a transferor who is a natural person to a transferee that is a partnership if, immediately after the transfer, the transferor’s share of the income or losses of the partnership is at least 90%.

The Act will also be amended to provide an exemption from the payment of Duties where the transfer of an immovable is made by a transferor that is a partnership to a transferee who is a natural person if, throughout the 24-month period immediately preceding the transfer, the transferee’s share of the income or losses of the partnership is at least 90%.

Where the transfer partnership was formed less than 24 months before the transfer, the exemption from Duties will be granted at the time of the transfer if the exemption condition was met throughout the period that begins on the date of the partnership was formed up to the moment immediately preceding the transfer.

Extension of concept of closely related persons

The Act will also be amended so that the exemption from the payment of Duties for closely related legal persons applies to the transfer of an immovable made by a transferor or a transferee that is a partnership, with the necessary adaptations respecting the exemption condition concerning the percentage of income or losses of the partnership.

This new exemption will apply to transfers of immovable made after December 20th, 2017.

Disclosure mechanism applicable where the exemption condition ceases to be met

Currently, the provisions of section 6.1 of the Act provide that the transferee of an immovable whose transfer was exempt from the payment of Duties must notify the municipality where the immovable is situated, where in the 24-month period following the date of transfer, the exemption condition concerning the percentage of voting rights ceases to be met.

The Act will be amended so that the existing disclosure mechanism applies, with the necessary adaptations, to the transfer of an immovable involving a partnership. The transferee of an immovable will be required to file a notice to disclose that the conditions for exemption are no longer met in the 24-month period following the date of transfer.

Exceptions to the requirement to produce the notice of disclosure

The Act currently provides exceptions to the requirement to produce a notice of disclosure where the transfer of an immovable involves a legal person. The Act will be amended to introduce exceptions to the requirement to produce the notice of disclosure applicable where the conditions relating to the required exemption percentage of partnership income or losses cease to be met in the 24-month period following the date of transfer of the immovable.

In particular, where a transfer was exempt from the payment of Duties under the exemption concerning the transfer of an immovable made by a transferor who is a natural person, such person will not be required to pay Duties that would have been otherwise payable in respect of the transfer if, at a particular time in the 24-month period following the date of transfer of the immovable, the transferor’s percentage of the income or losses of the partnership falls below 90% due to:

  • The dissolution of the transferee; or
  • The loss of the transferor’s quality of partner for an unexpected reason such as the death or bankruptcy of the partner or the institution of protective supervision in respect of the partner.

Also, an amendment to the Act will provide that the transferee of an immovable whose transfer was exempt from the payment of Duties, under the exemption concerning the transfer of an immovable made between two partnerships or between a partnership and a legal person, will not be required to pay the Duties that would have been otherwise payable in respect of the transfer if, at a particular time in the 24-month period following the date of transfer of the immovable, the transferor and the transferee are involved in the transfer cease to be part of the same closely related group due to:

  • The amalgamation of the legal person that is the transferor or the transferee, as the case may be, with one or more legal persons, where the legal person resulting from the amalgamation is closely related to the transferee or the transferor, as the case may be, immediately after the amalgamation and throughout the remainder of the 24-month period following the date of transfer of the immovable; or
  • The dissolution of the transferor or transferee.

Date of application

These amendments will apply to transfers of immovables made after December 20th, 2017.

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