CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Miguel Manzano, Stikeman Elliott LLP
10%) from each progress payment under the con - struction contract. These hold-back funds can be paid into court if a lien is registered against an owner’s lands, to have the lien discharged from title to the lands. In so doing, the owner’s liability is capped, pro - vided the owner had no direct contractual obligations to the lien claimant. In Quebec, construction liens (legal hypothecs) are governed by the Civil Code and subsist without reg - istration for 30 days after the end of the work, after which they must be registered. There are no hold-back provisions in the Civil Code, and such legal hypothecs secure the value added by the work, services or sup - plied materials. In attempts to keep funds flowing through the con - struction pyramid and prevent costly project delays, many Canadian provinces have introduced prompt payment legislation with respect to construction con - tracts which introduce mandatory timelines for pay - ments by owners and contractors following receipt of a proper invoice, as well as timelines for providing notices of non-payment. 7.7 Requirements Before Use or Inhabitation In most cases, an occupancy permit or final approval, based on compliance with building codes and other applicable regulations/standards, must be issued by the local municipality before a project can be inhab - ited or used for its intended purpose. Goods and services tax (GST), harmonised sales tax (HST) and Quebec sales tax (QST) constitute all appli - cable VAT in Canada. Rates range from 5% to 15%, depending on the jurisdiction within Canada in which the transfer takes place. GST/HST/QST generally apply to the transfer of com - mercial real property, as well as new residential real property. The seller is responsible for collecting the applicable VAT from the buyer, except where the buyer is entitled to self-assess VAT (ie, buyers that are regis - tered for VAT purposes and acquire real estate in the 8. Tax 8.1 VAT and Sales Tax
course of their commercial activities). Used residential real estate is generally exempt from VAT. Additionally, transfers of real property in the context of the sale of a business may be exempt from GST/HST/QST. 8.2 Mitigation of Tax Liability Where land transfer tax is imposed, it typically applies to the transfer of real estate and not to transfers of shares of a corporation or (with certain exceptions, including in Ontario and Quebec) interests in a part - nership that owns real estate. In some jurisdictions, land transfer tax is payable on the conveyance of a leasehold interest in land if the lease term exceeds specified thresholds. In British Columbia, property transfer tax is currently only payable on registered transfers of real property. Transfers of a beneficial interest in real estate do not trigger payment of property transfer tax. As a result, owners of commercial real estate often structure their ownership as a bare trust, with a nominee company holding the legal or registered title to the real estate in trust for the “real” or beneficial owner of the real estate. On closing, the seller transfers the shares of the nominee company and the beneficial interest in the property to the buyer, avoiding registration of a legal transfer of title in the Land Title Office. However, such transactions are anticipated to incur tax in the near future, as the British Columbia provincial govern - ment has established a beneficial ownership registry. See also the description of the federal underused housing tax in the same section. 8.3 Municipal Taxes Municipal property taxes are payable by the owner of the property and are generally passed on to ten - ants. These taxes are typically calculated based on the use and assessed value of the property. Some municipalities provide exemptions for public and/or non-profit organisations, or for geographical areas in which the municipality wishes to provide an incentive for development. 8.4 Income Tax Withholding for Foreign Investors The taxation of rental income for a non-resident of Canada directly invested in Canadian real property
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