Ontario Ministry retroactively repeals an Ontario LTT exemption for REIT or partnership acquisitions of real estate partnerships, but grandfathers transactions with rulings

An Ontario land transfer tax Regulation exempts acquisitions of beneficial interests in real estate occurring by virtue of the disposition of a partnership interest where the purchaser’s partnership profit entitlement does not increase by more than 5% in the year. As a trust (such as a REIT) or partnership is transparent for Ontario LTT purposes, this exemption has applied where a partnership or trust acquired a real estate partnership, provided that no unitholder had a greater than 5% interest in the purchaser.

On February 18, 2016, Ontario released an amending Regulation which provides that the 5% exemption does not apply to a purchaser which is a trust or another partnership.

This amendment is stated to be retroactive to July 19, 1989. However, in a Bulletin released at the same time, the Ministry states:

If a person has received a written ruling from the Ministry on or before February 18, 2016 that applies to a taxpayer-specific disposition of a beneficial interest in land that is a partner's interest in a partnership, the Ministry will generally consider the ruling to continue to apply to the taxpayer-specific disposition.

The retroactive aspect of the amendment is not only abhorrent, but also likely ill-considered. S. 22(2)(b) of the LTTA authorizes the cabinet to make regulations “exempting from tax arising under section 3 prescribed dispositions” but does not explicitly authorize them to make regulations taking away an exemption for a completed transaction which was exempted at the time. Normal canons of construction (see, e.g., Corbett) would suggest that the amendment was unauthorized. Were it invalid, it also would not operate on a prospective basis.

Neal Armstrong. Summary of Ontario Ministry of Finance, "Land Transfer Tax ‘De Minimis’ Partnership Exemption: Clarifying Amendments for Certain Dispositions" under Reg. 70/91.