CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Miguel Manzano, Stikeman Elliott LLP
visions of the statute and retain the specified percentage (usually 10%) from each progress payment under the construction 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, provided 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 with - out registration 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 add - ed by the work, services or supplied materials. 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/stand - ards, must be issued by the local municipality before a project can be inhabited or used for its intended purpose. 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 8. Tax 8.1 VAT and Sales Tax
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 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.
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