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$6 Million of Further Property Switch Tax Levied on Property Owned by Two British Columbia Corporations. On October 24, 2023, the Supreme Court docket of British Columbia issued a call discovering that further 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 firms and the people on the high 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 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 “Useful Proprietor”). The Registered Proprietor and the Useful 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 included within the Folks’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 can be known as the “Final Shareholder” on this weblog submit).
The Registered Proprietor and the Useful Proprietor paid property switch tax on the Transaction, however didn’t pay further 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) beneath 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, beneath the PTT Act, and as such, the Registered Proprietor was additionally a “international company” beneath the PTT Act such that the Further PTT utilized.
Subsequently, the Registered Proprietor appealed the Minister’s resolution to the British Columbia Supreme Court docket.
The center of the problem within the Transaction was the definition of a “international company” beneath 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 that means of Part 256 of the Canadian federal Revenue Tax Act. This phrase, managed “immediately or not directly in any method no matter” is broad, and may embody management in reality (i.e. affect) in addition to authorized management (i.e. share possession).
Within the British Columbia Supreme Court docket proceedings, Registered Proprietor argued that it was not a “international company” beneath the PTT Act as a result of it was “finally managed” by the Final Shareholder, who was a everlasting resident of Canada. In assist of its place, the Registered Proprietor asserted that the that means of “managed” beneath the PTT Act ought to be restricted to Part 256(5.1) of the Revenue 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” beneath Part 256(5.1) ought to be interpreted to imply that there may solely be one individual or entity that holds “final management” of a taxpayer.
However, the Minister submitted that “managed” beneath the PTT Act encompassed all provisions inside Part 256 of the Revenue Tax Act, and didn’t depend upon final management by one individual or entity. This assertion was essential to the Minister’s argument, as there are particular provisions inside Part 256 that permit for an entity to be managed by multiple individual 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 because of the software 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 finally agreed with the Minister, and the Registered Proprietor’s enchantment 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 firms selected to construction their affairs.
As of posting of this weblog, we be aware that this resolution is beneath enchantment. We’ll present an additional replace with the outcomes of that enchantment when out there.
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