[BUYING AND SELLING REAL ESTATE IN CANADA - QUÉBEC]
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Bare trusts employed to hold registered title to real estate or other assets belonging to third parties, which may not be reflected by a formal trust deed, and which previously did not have to file tax returns, are currently exempted from these rules but the government has signaled that the rules will be extended to them as well in the near future. The failure to file an annual Canadian income tax return could result in penalties for each missing year of up to 5% of the fair market value of the trust’s assets, plus interest. Nominee or prête–nom agreements Nominee or “prête-nom” agreements are commonly used in real estate transactions to register property in the name of a nominee corporation, which holds legal title only, with the beneficial ownership retained by the true owner(s). Nominee corporations are often used to collect rent and pay expenses, or to acquire family assets such as a residence. Even if already disclosed in the taxpayer’s tax return, all Québec taxpayers must file prescribed form TP-1079.PN disclosing all nominee agreements: • Signed on or after May 17, 2019, on the later of (i) 90 days following the date of signature and (ii) December 23, 2020; or • Signed before May 17, 2019, but having income tax consequences continuing on or after May 17, 2019 ( e.g., deduction of expenses, attribution of rental income, imposition of a capital gain, principal residence exemption claims, creation of tax attributes such as adjusted cost base, etc.) by or before December 23, 2020. Nominee agreements signed before May 17, 2019, but not having income tax consequences on or after that date need not be disclosed. The information to be disclosed includes the date and a copy (if in writing) of the nominee agreement or other document evidencing same,
the identity of the parties, a full description of the transaction (or the series of transactions) covered by the nominee arrangement and the identity of any person or entity for which there are resulting tax consequences. Disclosure by one party to the nominee agreement is deemed to be disclosure by all parties. Failure to disclose a nominee arrangement can result in an initial penalty of $1,000 plus an additional daily penalty of $100 (up to a maximum total penalty of $5,000). Also, Revenu Québec can suspend the taxpayer’s tax assessment period, such that prescription (limitation period) does not begin to run on any tax claims for that period. VII. CLOSING COSTS / ADJUSTMENTS Mutation (“welcome”) tax The buyer must pay the mutation or transfer tax (colloquially referred to as the “welcome tax”) to the Québec Minister of Revenue under the Mutation Tax Act (Québec) within 31 days of issuance of the first tax bill, subject to certain exceptions for transfers between related parties ( e.g., two spouses, a parent and child, or a corporation and its shareholder, provided the shareholder holds at least 90% of the shares and the buyer does not re-sell or “flip” the property within 24 months of the initial exempt sale). Mutation tax rates are calculated on the higher of the purchase price and municipal evaluation of the property (both of which are identified in the deed, as is the amount payable, even where an exemption applies). The 2022 rates are as follows: (i) 0.5% of the first portion of the taxable amount up to $52,800; plus (ii) 1% of the portion of the taxable amount between $52,800 and $264,000; plus (iii) 1.5% of the portion of the taxable amount between $264,000 and $500,000; plus (iv) 2% of the taxable amount between $500,000 and $1,000,000; plus (v) 2.5% of the taxable amount in excess of $1,000,000. Québec municipalities are entitled to impose a
ILN Real Estate Group – Buying and Selling Real Estate Series
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