Duties on the Transfer of Immovables in the Context of Major Projects

The province and its cities are currently undertaking a number of large-scale projects: several billion dollars of public and private investments are planned over the next decade in Quebec. Faced with this reality, transfer duties (more commonly referred to as the "welcome tax") are becoming a considerable source of income for municipalities that see major real estate projects emerging in their region.[1]

Under the Act respecting duties on transfers of immovables[2] (hereinafter "A.D.T.I."), a local municipality must collect a duty on the transfer of any immovable situated within its municipal area[3]. The local municipality has no discretion in regard to the A.D.T.I. and must collect a transfer duty upon transfer of an immovable located within its municipal area. 

The revenue from the collection of transfer duties of immovables in 2016 was $572.3 million. 

How Are the Duties on the Transfer of Immovables Imposed?

The taxable amount of the transfer duties is the higher of the following amounts:

• the amount of consideration provided for the transfer of the property (less GST and QST);
• the amount of consideration stipulated for the transfer of the property (normally the sale price indicated in the deed);
• the amount of the property's market value at the time of its transfer (value on the property assessment roll, multiplied by the comparative factor for the current year)[4].

In addition, pursuant to the A.D.T.I., where an immovable constitutes, at the time of its transfer, a unit of assessment entered on the property assessment roll of a municipality or part of such a unit the value of which is separately entered on the roll, its market value shall be the product obtained by multiplying the value entered on the roll for the unit or part corresponding to the transferred immovable[5].

The amount of the transfer duty corresponds to the sum of the following amounts (section 2):

• the amount corresponding to 0.5% of the first $50,900 of the basis of imposition; 
• the amount corresponding to 1% on that part of the basis of imposition between $50,900 and $254,400; 
• the amount corresponding to 1.5% on that part of the basis of imposition exceeding $254,400.

Let us provide an example and assume that the basis of imposition is $600,000. The transfer duty would then be $7,473, which is the sum of the following amounts:

• $254 ($50,900 x 0.5%);
• $2,035 ($203,500 x 1%);
• $5,184 ($345,600 x 1.5%).

The A.D.T.I. now allows any municipality to set a rate higher than 1.5% for any portion of the tax base exceeding $500,000. To set such a rate, the municipality must adopt a by-law[6]. However, the rate thus fixed must not exceed 3%, except for the City of Montréal (see the rates in effect for 2019)[7].

Each of the amounts used to establish the aforementioned parts of the bases of imposition must be subject to an annual indexation, calculated according to a statistical method developed in the new section 2.1 of the A.D.T.I. The percentage increase shall be published no later than 31 July of the year preceding that for which it has been fixed, in order to allow interested parties (notaries, brokers and other real estate professionals) to incorporate them into their practices. For the fiscal year 2019, the rate of increase used to determine the amount used to establish these tax brackets is 1.035%.[8]

For transfers of immovables that are not recorded in the land register, the obligation to pay a transfer duty requires a notice of disclosure of certain information.

What Are the Exemptions Regarding Transfer Duty Payments When Transferring an Immovable?

We will not go into great detail with regards to the various exemption systems prescribed in the A.D.T.I.; these cover public bodies (section 17), agricultural operations (section 18), money lending businesses (section 19), transfers to corporations that are under more than 90% control (section 19), transactions under $5,000 and various exceptions as described in section 20.

On 20 December 2017, via Information Bulletin 201-14, the Department of Finance announced its intention to introduce a new exemption whereby a partnership (limited partnership, general partnership and undeclared partnership) would be a party to a transfer of property in circumstances similar to those provided for in paragraphs (a), (b) and (d) of the first paragraph of section 19 that apply to a legal person.

These amendments governed any transfer of property made after 20 December 2017. Bill 13, introduced on 26 February 2019 by the Minister of Finance and passed on 19 June 2019, is intended to follow up on this announcement with retroactive effect from 20 December 2017.

The announced exemption applies in the following situations[9]:

• the transferor is a natural person and the transferee is a partnership, provided that the transferor's share of the corporation's income or loss is, immediately after
• the transfer, at least 90% (s. 19 a.1 of the amended A.D.T.I.);
• the transferor is a partnership and the transferee is a natural person, provided that the transferee's share of the partnership's income or loss is, during the 24-month period preceding the transfer, at least 90% (s.19 b.2 of the amended A.D.T.I.);
• the transferor and a transferee are both partnerships or a partnership and a corporation under conditions similar to those that apply to two closely related corporations with respect to the 90% test for the partnership's income or loss.

Of course, a disclosure mechanism will apply under specific rules to this new exemption and sections 4.1, 4.2, 4.2.1, 4.2.1, 4.2.1.1, 4.2.2.2 and 10.2 of the A.D.T.I. are either amended or added to ensure consistency with the provisions in force for legal persons and which are now applicable to partnerships.

  

[1]From the book La fiscalité locale: municipale, scolaire et régionale, second edition, WoltersKluwer, Montreal 2019, by Pierre Delisle.  [2]Act respecting duties on transfers of immovables, CQLR, c. D-15.1 (hereinafter referred to as "A.D.T.I.").  [3]A.D.T.I., s. 2,  para. 1 For statistics on transfer duties, see MAMH [Ministry of Municipal Affairs and Housing], Financing and taxation of municipal organisations in Quebec, 18 July 2019.  [4]A.D.T.I, s. 2, 2nd para.  [5]Act respecting municipal taxation, s. 1.1.  [6]A.D.T.I., s. 2, para. 2  [7]For that part of the basis of imposition that does not exceed $50,000: 0.5%; from $50,000 to $254,400%: 1.0%; from $254,400 to $508,700: 1.5%; from $508,700 to $1,017,400 2.0%; and exceeding $1,017,400: 2.5%.  [8]2018, 150 G.O. 1, 389  [9]Bill 13, 2019, section 39 passed on 19 June 2019; SQ 2019, chapter 14.