On October 24, 2023, the Supreme Courtroom of British Columbia issued a choice discovering that extra property switch taxes of $6,000,000 had been payable on a residential property. Each the registered and useful house owners of the property in query had been British Columbia firms and the people on the high of the construction had been Canadian everlasting residents. The outcomes of this case are a stark reminder of the significance of getting a transparent understanding of the Property Switch Tax Act when buying residential property, particularly when the possession construction includes international parts.
In August of 2018, an organization included in British Columbia (the “Registered Proprietor”) acquired title to a residential property (the “Property”) for $30,000,000 within the Metro Vancouver Regional District (the “Transaction”) and held such title as naked trustee for one more British Columbia firm (the “Helpful Proprietor”). The Registered Proprietor and the Helpful Proprietor had been wholly owned by one other British Columbia firm (the “B.C. Shareholder”). The shares of the B.C. Shareholder had been wholly owned by an organization included within the Individuals’s Republic of China (the “PRC Shareholder”). The shares of the PRC Shareholder had been fully held by two people with everlasting resident standing in Canada (the bulk shareholder of the PRC Shareholder will likely be known as the “Final Shareholder” on this weblog submit).
The Registered Proprietor and the Helpful Proprietor paid property switch tax on the Transaction, however didn’t pay extra property switch tax (“Extra PTT”). Extra PTT is imposed on “international entities” (being an individual who’s neither a Canadian citizen or a Canadian everlasting resident, nor a international company) and “taxable trustees” (which means a trustee of a belief by which both a trustee is a international entity or a beneficiary who’s a international entity holds a useful curiosity within the residential property held by the belief) underneath the B.C. Property Switch Tax Act (the “PTT Act”), and applies to sure areas in B.C., together with the Metro Vancouver Regional District.
In December of 2020, the B.C. Minister of Finance (the “Minister”) assessed that the Transaction was topic to Extra PTT within the quantity of $6,000,000. The Registered Proprietor appealed this evaluation. In September of 2022, the Minister decided that the Registered Proprietor was “managed” by the PRC Shareholder, a international company, underneath the PTT Act, and as such, the Registered Proprietor was additionally a “international company” underneath the PTT Act such that the Extra PTT utilized.
Subsequently, the Registered Proprietor appealed the Minister’s resolution to the British Columbia Supreme Courtroom.
The center of the difficulty within the Transaction was the definition of a “international company” underneath the PTT Act. A international company features a company that’s included in Canada and is managed by an organization that isn’t included in Canada. The PTT Act defines the time period “managed” as “immediately or not directly [controlled] in any method no matter” throughout the which means of Part 256 of the Canadian federal Earnings Tax Act. This phrase, managed “immediately or not directly in any method no matter” is broad, and may embrace management in truth (i.e. affect) in addition to authorized management (i.e. share possession).
Within the British Columbia Supreme Courtroom proceedings, Registered Proprietor argued that it was not a “international company” underneath the PTT Act as a result of it was “in the end managed” by the Final Shareholder, who was a everlasting resident of Canada. In help of its place, the Registered Proprietor asserted that the which means of “managed” underneath the PTT Act needs to be restricted to Part 256(5.1) of the Earnings Tax Act as a result of Part 256(5.1) particularly addresses the which means of the phrase “managed, immediately or not directly in any method no matter”. The Registered Proprietor additionally relied on sure case legislation which acknowledged that “management” underneath Part 256(5.1) needs to be interpreted to imply that there might solely be one particular person or entity that holds “final management” of a taxpayer.
Alternatively, the Minister submitted that “managed” underneath the PTT Act encompassed all provisions inside Part 256 of the Earnings Tax Act, and didn’t rely on final management by one particular person or entity. This assertion was important to the Minister’s argument, as there are particular provisions inside Part 256 that permit for an entity to be managed by a couple of particular person at a specific time (i.e. simultaneous management). These provisions on simultaneous management in Part 256 had been enacted particularly to override the “final management” idea formulated within the particular case legislation relied on by the Registered Proprietor. The Minister asserted that the Registered Proprietor was concurrently managed by the PRC Shareholder, the BC Shareholder, and the Final Shareholder because of the software of those simultaneous management provisions, and as such, was “managed” by a international company throughout the which means of the PTT Act.
The courtroom in the end agreed with the Minister, and the Registered Proprietor’s attraction was dismissed. The courtroom concluded that whereas the Extra PTT was avoidable from the Final Shareholder’s perspective (i.e. the Final Shareholder might have chosen to easily not contain the PRC Shareholder within the possession construction of the Property), the evaluation for Extra PTT was a consequence of how the Final Shareholder and his firms selected to construction their affairs.
As of posting of this weblog, we observe that this resolution is underneath attraction. We are going to present an additional replace with the outcomes of that attraction when accessible.
