CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Patrick Morin, Stikeman Elliott LLP
before a project can be inhabited or used for its intended purpose.
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 Colum - bia provincial government has established a beneficial ownership registry, as discussed in 1.3 Proposals for Reform . See also the description of the federal under - used 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 tenants. These taxes are typically cal - culated based on the use and assessed value of the property. Some municipalities provide exemptions for public and/or non-profit organi - sations, 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-res - ident of Canada directly invested in Canadian real property depends partly on whether such income is characterised as income from prop - erty or income from carrying on a business. Generally, the more effort expended in respect of the property, the higher the likelihood it will constitute a business. Tax on a Business If the rental income constitutes carrying on busi - ness in Canada, the non-resident will generally
8. Tax 8.1 VAT and Sales Tax
Goods and services tax (GST), harmonized sales tax (HST) and Quebec sales tax (QST) constitute all applicable 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 commercial real property, as well as new resi - dential 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 registered for VAT pur - poses and acquire real estate in the 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 cer - tain exceptions, including in Ontario and Que - bec) interests in a partnership that owns real estate. In some jurisdictions, land transfer tax is payable on the conveyance of a leasehold inter - est in land if the lease term exceeds specified thresholds. In British Columbia, property transfer tax is cur - rently only payable on registered transfers of real property. Transfers of a beneficial interest in real estate do not trigger payment of property trans - fer tax. As a result, owners of commercial real
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