On October 24, 2023, the Supreme Courtroom of British Columbia issued a choice discovering that extra property switch taxes of $6,000,000 have been payable on a residential property. Each the registered and helpful house owners of the property in query have been British Columbia corporations and the people on the prime of the construction have 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 entails international elements.
In August of 2018, an organization integrated 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 have been wholly owned by one other British Columbia firm (the “B.C. Shareholder”). The shares of the B.C. Shareholder have been wholly owned by an organization integrated within the Individuals’s Republic of China (the “PRC Shareholder”). The shares of the PRC Shareholder have been totally 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 publish).
The Registered Proprietor and the Helpful Proprietor paid property switch tax on the Transaction, however didn’t pay extra property switch tax (“Further PTT”). Further 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” (that means a trustee of a belief through which both a trustee is a international entity or a beneficiary who’s a international entity holds a helpful curiosity within the residential property held by the belief) below 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 Further 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, below the PTT Act, and as such, the Registered Proprietor was additionally a “international company” below the PTT Act such that the Further PTT utilized.
Subsequently, the Registered Proprietor appealed the Minister’s choice to the British Columbia Supreme Courtroom.
The guts of the difficulty within the Transaction was the definition of a “international company” below the PTT Act. A international company features a company that’s integrated in Canada and is managed by a company that isn’t integrated in Canada. The PTT Act defines the time period “managed” as “immediately or not directly [controlled] in any method no matter” throughout the that 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 actual fact (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” below 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 that means of “managed” below the PTT Act ought to be restricted to Part 256(5.1) of the Earnings Tax Act as a result of Part 256(5.1) particularly addresses the that means of the phrase “managed, immediately or not directly in any method no matter”. The Registered Proprietor additionally relied on sure case regulation which acknowledged that “management” below Part 256(5.1) ought to be interpreted to imply that there may solely be one particular person or entity that holds “final management” of a taxpayer.
However, the Minister submitted that “managed” below the PTT Act encompassed all provisions inside Part 256 of the Earnings Tax Act, and didn’t rely upon 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 have been enacted particularly to override the “final management” idea formulated within the particular case regulation 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 as a result of utility of those simultaneous management provisions, and as such, was “managed” by a international company throughout the that means of the PTT Act.
The court docket in the end agreed with the Minister, and the Registered Proprietor’s attraction was dismissed. The court docket concluded that whereas the Further PTT was avoidable from the Final Shareholder’s perspective (i.e. the Final Shareholder may have chosen to easily not contain the PRC Shareholder within the possession construction of the Property), the evaluation for Further PTT was a consequence of how the Final Shareholder and his corporations selected to construction their affairs.
As of posting of this weblog, we observe that this choice is below attraction. We are going to present an extra replace with the outcomes of that attraction when accessible.