Tax Insights: Partnership exemption for Ontario land transfer tax retroactively eliminated for trusts and partnerships

Issue 2016-11

On February 18, 2016, the Ontario Ministry of Finance (the Ministry) introduced certain retroactive amendments to Regulation 70/91 under the Land Transfer Tax Act (the Amendments). The Amendments disqualify trusts and partnerships from using the land transfer tax exemption that is available for transfers of a beneficial interest in land by way of certain transfers of partnership interests (the Partnership Exemption).

Before the Amendments, the Partnership Exemption provided a land transfer tax exemption for a transfer of a beneficial ownership in land that occurs on the acquisition of an interest in a partnership that owns land in Ontario, if the acquiror’s percentage entitlement to partnership profits for the year did not exceed by more than 5% of its entitlement at the beginning of the year (the “de minimis” threshold).

Since the Partnership Exemption was introduced on July 19, 1989, it has been relied on by various pooled investment vehicles, such as trusts, including real estate investment trusts (REITs), and partnerships, in transactions involving the acquisition of interests in partnerships that own land in Ontario, on the basis that the de minimis threshold had not been exceeded when applied on a look-through basis, to the ultimate investors who would normally be considered the beneficial owners of the underlying land for Ontario land transfer tax purposes.

The Amendments will apply retroactively to dispositions that occur after July 18, 1989, and are intended to “clarify” that the Partnership Exemption does not apply if the partner who acquires the partnership interest is a trust or another partnership. Consequently, REITs, other trusts or partnerships that may have relied on the Partnership Exemption in historical transactions are no longer entitled to do so, unless the reliance was based on a written ruling obtained from the Ministry before February 19, 2016.

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