Ontario Ministry of Finance proposes to end the transparency of mutual fund trusts and SIFT partnerships for LTT purposes

The Ontario Ministry of Finance has released (with a comments-due date of August 28, 2017) a proposed modification to the Ontario land transfer tax rules for dispositions of beneficial interests in Ontario real estate by some trusts and LPs and their unitholders.

“Group 1” vehicles will themselves be treated as separate LTT taxpayers and, thus, be required to pay LTT on their beneficial acquisitions – and conversely acquisitions or redemptions of interests in Group 1 vehicles will no longer trigger LTT. Group 1 vehicles are:

• SIFT trusts and partnerships as defined for ITA purposes;
• mutual fund trusts the units in which are eligible for the MFT unit exemption (as described in the current Regulation); and
• pension trusts which are exempt under ITA s. 149(1)(o).

No exemption for REIT mergers is mentioned.

A "Group 2" vehicle is an ITA s. 108 unit trust, or a partnership that has filed (or is required to file) a declaration under the Ontario Limited Partnerships Act (and not the Act for any of the other provinces) - which, in either case, has had over 49 arm's length unitholders or partners. Unitholders or partners of Group 2 vehicles will have the same substantive liability for direct or indirect beneficial transfers as before. Although the Group 2 vehicle itself will continue to be a flow-through for such purposes, it will become an LTT collector and be required to collect and remit LTT calculated at the unitholder or partner level - and will be authorized to collect such amounts from them through withholding from distributions. If it collects an insufficient amount, it will be subject to a penalty of at least the amount it failed to collect. (It is not clear whether this is intended to be effectively a double imposition, so that the Ministry might still go after the unitholders as well.)

No changes are proposed in the treatment of other trusts or partnerships.

At the time of title registration, nominees will be required to disclose the legal names and business registrations numbers of the partnerships or trusts for whom they now hold title.

Neal Armstrong. Summary of Ontario Ministry of Finance Proposal 17-MOF010, posted 14 July 2017 “Facilitating the Payment and Administration of the Land Transfer Tax under Section 3 of the Land Transfer Tax Act” under Ontario Land Transfer Tax Act, s.3(1).