Transfers Involving Corporations

This page provides clarification of the application of the Land Transfer Tax Act (Act) to certain transactions involving corporations.

Transfer to a Corporation Where Shares Form Part of the Consideration Passing to the Vendor or Transfer from a Corporation to Any of its Shareholders

Pursuant to section 1 of the Act, paragraph (g) of the definition of "value of the consideration", in the case of a conveyance of land to a corporation, where any part of the consideration is the allotment and issuance of shares of the transferee corporation, or in the case of conveyance of land from a corporation to any of its shareholders, the taxable consideration is deemed to be the fair market value of the land at the time of registration of the conveyance.

This definition also applies to the determination of the consideration in the case of an unregistered disposition under section 3 of the Act. The fair market value in those cases is to be determined as at the date of disposition.

Statutory Amalgamations

Where, by virtue of a statutory amalgamation, the land or lands of two or more companies become vested in the company resulting from the amalgamation, such conveyance of land is not interpreted by the Ministry of Finance as a conveyance of land within the meaning of section 1 of the Act and, as a result, no tax is payable on these transactions. Also, any unregistered transfers of land that result from a statutory amalgamation are not dispositions under section 3 of the Act.

Contributions of Capital to Corporations

Where a conveyance of land that is a contribution of capital to a corporation is tendered for registration and no consideration is given by the corporation for the land, the conveyance is not subject to tax under the Act. It should be noted that there must be no consideration passing in any form (such as the issuance of shares, the assumption of liabilities, the issuance of a promissory note, etc.). This is not an exemption from tax, but rather, as there is no consideration passing in any form, there is no tax payable.

Note: This also applies to unregistered dispositions described in section 3 of the Act.

In those cases a return must still be filed, but there will be no tax payable.

Dispositions between Affiliated Corporations

Subsection 3(9) of the Act allows for a deferral of the tax payable under subsection 3, for unregistered dispositions between affiliated corporations, as follows:

"If the disposition of a beneficial interest in land is from one corporation to another corporation, each of which is an affiliate of the other immediately before and at the time of the disposition, the Minister may defer the payment of the tax payable by virtue of this section by the corporation acquiring the beneficial interest if,

1. before the thirtieth day after the date of disposition of the beneficial interest in the land, the corporation applies to the Minister for the deferral and submits a written undertaking satisfactory to the Minister, undertaking that for a period of at least thirty-six consecutive months immediately following the date of the disposition,
   1. the corporation making the disposition and the corporation acquiring the beneficial interest on the disposition will continue to be affiliates of each other, and
   2. the beneficial interest in the land will continue to be owned by the corporation acquiring the beneficial interest on the disposition or by a corporation that is an affiliate of that corporation and with the corporation which made the disposition of the beneficial interest in the land;
2. security for the tax in a form and of a kind acceptable to the Minister is furnished to the Minister; and
3. no conveyance or instrument or electronic document evidencing the disposition has been registered."

THIS DEFERRAL DOES NOT APPLY TO CONVEYANCES THAT ARE TAXABLE UNDER SECTION 2.

Note: For purposes of the deferral under section 3:

1. a corporation shall be deemed to be an affiliate of another corporation if one of them is the subsidiary of the other, or if both are subsidiaries of the same corporation, or if each of them is controlled by the same person or persons;
2. a corporation shall be deemed to be a subsidiary of another corporation if it would be a subsidiary of that corporation for the purposes of the Securities Act; and (c) subsections 1 (3) to (6) of the Securities Act apply in determining if a corporation is an affiliate of another corporation.

In order to apply for a deferral under subsection 3(9) of the Act the following documentation must be submitted to the Ministry of Finance:

1. Completed Return on the Acquisition of a Beneficial Interest in Land
2. Application and Undertaking for the Deferral of Land Transfer Tax pursuant to Subsection 3(9)
3. Security* acceptable to the Minister for the deferred tax
4. Copy of all agreements between the parties
5. Copy of the shareholders registers for both the transferor and transferee corporations and any corporate shareholders of those corporations
6. Copy of any appraisals (where fair market value is the consideration)
7. Copy of the relevant abstract pages for the lands involved in the disposition in order to confirm no conveyance, or instrument or electronic document evidencing the disposition has been registered
8. Any other documentation the Ministry may require in support of the application for deferral

*Currently the only forms of security acceptable to the Minister are (a) payment of the tax or (b) letter of credit, for the amount of the tax together with applicable interest for the three year period. The Branch may be contacted to calculate the tax and interest.

NOTE: If a letter of credit is provided as security, the applicant is to submit the original and a copy. The original and the copy are sent to separate addresses - see the instructions below.

Attached to this page is a sample form of the letter of credit required. Pursuant to subsection 3(11), the tax deferred under subsection 3(9) will be cancelled, if one of the following conditions are met and documentation satisfactory to the Ministry is submitted:

1. the Minister is of the opinion that the undertaking given under subsection (9) has been satisfied and no conveyance or instrument evidencing the disposition of the beneficial interest in land has been registered;
2. a conveyance or instrument or electronic document evidencing the disposition of the beneficial interest in land to the corporation has been registered and the tax payable under section 2 or 2.1 has been paid; or
3. there has been a disposition of the beneficial interest in the land, or a conveyance of the land, by the corporation, or by an affiliate of the corporation, to a person who is not an affiliate of the corporation and tax has been paid under this Act in respect of that disposition or on registration of the conveyance, as applicable.

Corporate Re-Organizations

Section 2 of Regulation 70/91 provides for an exemption from the tax payable under Section 3 of the Act for certain unregistered dispositions to corporations, if all of the following criteria have been met:

1. The disposition must occur as part of a reorganization in the course of which a dividend is received by a corporation.
2. The amount of the dividend would be deemed under subsection 55(2) of the Income Tax Act (Canada), but for the application of paragraph 55(3)(b) of that Act, not to be a dividend received by the corporation, but to be proceeds of disposition of a share or shares or to be a gain of the corporation from the disposition of a capital property.
3. The disposition of the beneficial interest in land must constitute a transfer of property of a particular corporation to one or more corporations for the purposes of the application of paragraph 55(3)(b) of the Income Tax Act (Canada) in respect of the dividend referred to in subsection (2).

In order to apply for this exemption the following documentation must be submitted to the Ministry of Finance:

1. Completed Return on the Acquisition of a Beneficial Interest in Land
2. Application and Declaration for the Exemption of Land Transfer Tax Pursuant to Ontario Regulation 70/91
3. Copy of all agreements between the parties
4. Brief outline of the series of transaction to confirm the provisions of the exemption have been met or a copy of a ruling obtained from Canada Revenue Agency.
5. Any other documentation the Ministry may require in support of the application for exemption

THIS EXEMPTION DOES NOT APPLY TO REGISTERED CONVEYANCES WHICH ARE TAXABLE UNDER SECTION 2.

Contact us

Documents required under the Act can be submitted by email, fax or mail, as per the contact information noted below.

NOTE: Original letters of credit are to be sent to:

Ministry of Finance Attention: Mail Room Box 57 33 King Street West Oshawa ON L1H 8H5

Copies of letters of credit are to be sent via the contact information noted below.

If this page does not completely address your situation, refer to the Act and related regulations, visit our website at ontario.ca/finance or contact us by:

• Email: LTTGeneral@Ontario.ca
• Fax: 905-433-5770
• Telephone toll free: 1-866-668-8297
• Teletypewriter (TTY): 1-800-263-7776
• Mail: Ministry of Finance Land Taxes Section 33 King Street West Oshawa ON L1H 8H9

Sample Letter of Credit

[Bank Letterhead]

IRREVOCABLE STANDBY LETTER OF CREDIT

Letter of Credit No.__________________

Issue Date_________________________

TO: Minister of Finance Province of Ontario 3rd Floor, 33 King Street West Oshawa, Ontario  L1H 8H5

We, the [Insert name and address of Bank - the address must be in Ontario] (either "We" or the "Bank") hereby issue to and in favour of His Majesty the King in the Right of the Province of Ontario as represented by the Minister of Finance (either "You" or the "Minister") our Irrevocable Standby Letter of Credit for the account of [Insert exact legal name of taxpayer] (the "Customer") for an amount not to exceed [Insert dollars in text] ($ [Insert dollars in figures]) in lawful money of Canada.

This Letter of Credit is given for the obligations of the Customer incurred or to be incurred to You under the Land Transfer Tax Act, R.S.O. 1990, c. L.6, as amended and any successor legislation.

You are authorized, subject only to the terms of this Letter of Credit, to draw on the Bank from time to time and at any time, in the event that You require payment under this Letter of Credit. We shall issue payment without enquiring whether You have a right as between the Minister and the Customer to make such draw, and without recognizing any claims of the Customer or other remedies available to You at any time and from time to time.

Partial drawings are permitted under this Letter of Credit up to the full amount of this Letter of Credit.

All drawing requests under this Letter of Credit shall be made by a written demand for payment by the Minister that shall state the Letter of Credit No. and Issue Date and shall state that the amount drawn is in connection with the obligations of the Customer incurred or to be incurred under the Land Transfer Tax Act, R.S.O. 1990, c. L.6, as amended. All drawings must be made payable to the Minister of Finance. Any one of the Deputy Minister of Finance; the Associate Deputy Minister, Tax and Benefits Administration; the Director, Account Management and Collections Branch for the Minister of Finance or the Manager - Land Taxes, Compliance Branch for the Minister of Finance or any of their respective heirs, successors and assigns is duly authorized to sign the written demand by and for the Minister.

We shall honour your demand for payment not later than the second business day following receipt of the written demand for payment, provided the drawing request is presented at the address of the Bank stated above before 5:00 p.m. on or before the date this Letter of Credit expires.

The amount of credit from time to time available by this Letter of Credit may be reduced by such amount as shall be specified in writing by direction given to the Bank by You and over the signature of one of: the Deputy Minister of Finance, the Associate Deputy Minister, Tax and Benefits Administration; the Director, Account Management and Collections Branch for the Minister of Finance or the Manager - Land Taxes, Compliance Branch for the Minister of Finance or any of their respective heirs, successors and assigns.

This Letter of Credit will expire on ____________, but shall be deemed to be automatically extended without any formal amendment or notice to that effect, from year to year for successive periods of one year each from the present or any future expiration date hereof, unless not less than ninety days prior to the present or any future expiration We shall notify You in writing, delivered by courier or by prepaid registered mail to the attention of the:

Manager - Land Taxes Compliance Branch Ministry of Finance 33 King Street West, 3rd floor Oshawa ON  L1H 8H5

that the Bank elects not to renew this Letter of Credit beyond its current expiry. Upon receipt by You of such notice You may draw before 5:00 p.m. on or before the current expiry date the full amount hereunder by the written demand for payment.

We acknowledge and agree that this Letter of Credit is irrevocable.

This Letter of Credit is subject to the International Standby Practices (ISP98). This Letter of Credit shall also be governed by and construed in accordance with the laws of the Province of Ontario and the applicable laws of Canada except to the extent that such laws are inconsistent with the International Standby Practices (ISP98).

_________________________ AUTHORIZED SIGNATURE

_________________________ AUTHORIZED SIGNATURE