LAND TRANSFER TAX – Avoiding the tax, Trustee to Beneficiary
A client came into see me and wanted to transfer title to his property from his parents name to his and his wife. He was concerned about land transfer tax because as a general rule, land transfer tax is always payable when a beneficial interest is transferred from one person to another, subject to excemptions such as inter-spousal transfers. Generally, transfers from parents to children are not exempt if there is an encumbrance such as a mortgage registered on the property. It can be exempt if the transfer is a gift for nominal consideration and there are no encumbrances registered on the property.
In my client’s case, there was a mortgage registered and therefore we could not transfer the property as a gift. What other option did he have? After further review of his situation he disclosed that the property was registered in his parents name because at the time of purchase he could not qualify for a conventional mortgage. However, he made all the mortgage payments, property tax payments, maintenance, insurance, etc. Therefore he, and not his parents, was in fact the beneficial owner of the property. His parents were trustees, holding legal title to the property in trust for their son.
Conveyance of property from trustees to beneficiaries is one of the exemptions provided for in the Ontario Land Transfer Tax Act R.S.O. 1990, and such conveyances are not subject to the tax. In order to make the statements that the transfer is between a trustee and the beneficiary, the transferor or transferee will have to sign an affidavit outlining the factors (such as the ones listed above) that give rise to the trustee-beneficiary relationship and will have to provide a copy of the agreement of purchase and sale as evidence, attached to the affidavit.
When making a property acquisition in this type of scenario, make sure that you sign a trust declaration at the time of the acquisition and attach it to the agreement of purchase and sale, keeping it for when you are ready to transfer title. This scenario can also apply if you are purchasing a property which you intend to transfer to your corporation at a later date; however you will also have to make sure that your corporation is active at the time of acquisition and that the property is listed as an asset in your corporate books.
For more information or help with such conveyances contact the lawyers at Levy Zavet PC.