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Real Estate

Some Notes on Municipal Tax Sales

GST

On July 1, 2010, the Harmonize Sales Tax (HST) will replace GST in Ontario. However, the province’s municipal tax sales legislation precedes the federal GST legislation, which only dates back to 1991. There is no reference to GST in the legislation or the Rules, nor how it should be applied. According to the Act, the treasurer can declare the highest tenderer as the purchaser if the balance of the amount tendered, the applicable land transfer tax, and the accumulated taxes are paid in time, but there is no provision for withholding registration of a tax deed for failing to pay the GST.

A municipal tax sale is a taxable supply of property under the Excise Tax Act, requiring the municipality to collect GST from the purchaser. The municipality is treated as a creditor having seized or repossessed the property being sold, for federal purposes. As the treasurer may not know why the supply is tax exempt, GST is expected to be paid before the treasurer registers a tax deed for non-registrant purchasers. Hence, the solicitor has to get the purchaser’s confirmation of the non-registrant status, so as to pay the GST, even though there is no notice or agreement in the matter. To find out if the GST/HST applies to a transaction, it is prudent to obtain a ruling or interpretation in writing from the Canada Revenue Agency.

E-REG

Interestingly, registration of a tax deed can be obtained in paper form in any municipal tax sale transaction. Said registration paper can also be obtained wherever the land according to the land titles system, and where electronic registration is available. Prior to the enactment of the Municipal Act 2001, tax deeds and other registered tax sale documents were Polaris documents in paper form. The Municipal Tax Sales Rules, upon introduction, enumerated the information to be included in these documents, when registering electronically became possible.  However, even a decade after the introduction of electronic registration in Ontario, no electronic form of tax deed has been prescribed so far. Innovative municipalities may be looking for municipal tax sales documents in electronic form for  registration, but the process involves some element of risk. In time to come, all registration will be electronic, a longstanding initiative for which has been taken up by the office of the Director of Titles.

INVESTIGATION OF TITLE

It is necessary to engage a lawyer at the beginning of any transaction instead of at the end. However, if a tax sale purchaser engages a lawyer at all, it is likely to be after the purchaser is notified that the bid is successful and that he has to make the required payment. So, the time available for due diligence is limited to fourteen days from the date the notice was mailed. A tax sale is more of a process than a transaction. After notice has been issued and the requisite amount paid, the transaction is on autopilot. All that the purchaser’s lawyer can do is to protect the balance of the purchase price and carry out due diligence, including investigation of title for interests not cut out by tax deed.

EFFECT OF A TAX DEED

Effect of Registration

A tax deed after registration is final, binding, conclusive, and not subject to challenge except fraud. Invalidity of the property assessment, failure to comply with notice or other statutory requirements for sale, do not result in the setting aside of a tax deed. It is for the protection of tax sale purchasers, an intent reinforced by a specific prohibition against an action for recovery of the land after the registration of the tax deed, so long as the s. 379 (6) statement has been registered. The owner whose property was improperly sold is denied a remedy which would set aside the sale. In fact, a remedy in damages against the municipality is expressly preserved.

This, however, does not mean that a tax deed constitutes a good root of title. It is necessary to separate the effect of registration from the effect of conveyance.

Effect of Conveyance

A tax deed, on registration, vests in the person named in it, an estate in fee simple in the land, together with all rights, privileges, and appurtenances and free from all estates and interests, subject to three significant exceptions, namely Easements, Restrictions and Adverse Possessions. The tax sale purchaser’s title would be subject to easements and restrictive covenants that come with the land. It is also subject to estates and interests of the federal and provincial Crown, except in the case of the latter, where there has been an escheat or forfeiture under the Business Corporations Act or the Corporations Act. In regards to Adverse Possession, a purchaser will not acquire any interest in or title to any land described in a tax deed registered. However, a tax deed would vest any interest in or title to adjoining land acquired by adverse possession before it is registered, and hence, the tax deed is to contain a statement relating to the matter.

UNEXPECTED SURPRISES FOR PURCHASERS

Cancellation

The successful purchaser conducting all required due diligence, bearing the expenses for doing so, and the like, may find in the end that the tax sale has been cancelled. There are three clauses allowing such abrupt actions, against which the purchaser has no recourse.

“Duty of treasurer – 382 (3)

If, before registration of a tax deed the treasurer becomes aware of a failure, error or omission referred to in s. 382 (2), the treasurer must immediately register a tax arrears cancellation certificate.

The circumstances under s. 382 (2) are the following:

(a) a failure on the part of the treasurer to substantially comply with section 374 [notice of registration of tax arrears certificate] or subsection 379 (1) [Final Notice]; or

(b) an error or omission in the registration or sale of the land, other than an error or omission mentioned in subsection (5)[ failure or error where proceeding not voidable].

Proceedings Halted by Treasurer – 382 (6)

The treasurer may register a cancellation certificate if, in his or her opinion,

(a) it is not in the financial interests of the municipality to continue with proceedings; or

(b) because of some neglect, error or omission, it is not practical or desirable to continue the proceedings. If, for example, some element of a sale has not been properly conducted which may expose the municipality to liability, the treasurer has discretion to cancel the sale.

Sale Postponed – O. Reg. 181/03, s. 22 (1)

If, after advertising a public sale the treasurer is of the opinion that completing the sale would be impractical or unfair to the tenderers, the treasurer may postpone the sale and conduct it on a later date after re-advertising. However, if re-advertising is not accomplished within the required time, the treasurer must register a cancellation certificate.”

Ensure that your assets are protected. For more information and assistance regarding Real Estate or Canadian tax law contact Levy Zavet PC (Levy Zavet) in Toronto, Ontario today.

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