The Anti-Avoidance Blues: Does a Foreigner’s Title Nominee Share Purchase Constitute an “Avoidance Transaction”?
On August 2, 2016, the Province of British Columbia enacted amendments to the Property Transfer Tax Act (British Columbia) (the “Act”) which introduced a new 15% property transfer tax (colloquially referred to as the “foreign buyer tax”). This tax currently applies when a foreign national or foreign corporation purchases residential property situated in the GVRD. The amendments also include a new anti-avoidance rule applicable to the foreign buyer tax only. This rule has yet to be considered by a Court, but on its face it may affect the ability of a foreign national or foreign corporation to safely avail itself of a routine feature in many purchase and sale transactions in British Columbia: the purchase of a title nominee’s shares.
In British Columbia, it is quite common for legal title to commercial property to be held by a nominee in trust for an off-title beneficial owner. When that commercial property is sold, often the purchaser will elect to purchase the title nominee’s shares rather than take a transfer of legal title from the vendor, as this allows the purchaser to avoid paying property transfer tax. Although the foreign buyer tax applies to “residential property”, this phrase actually includes certain types of commercial property (for example, apartments and seniors’ housing) where a foreign purchaser may have an ability to purchase a title nominee’s shares.
The new anti-avoidance rule, set out in section 2.04 of the Act, is extremely broad; any arrangement or event that has the effect of reducing, avoiding or deferring the foreign buyer tax will constitute an avoidance transaction and result in liability for the purchaser. As the purchase of a title nominee’s shares results in avoiding property transfer tax entirely, including any foreign buyer tax, subject to my comments below it would seem on its face to constitute an avoidance transaction. Although no transfer would be filed at the Land Title Office to alert the Province that a transfer of ownership had occurred, the potential liability for the purchaser would appear to carry forward forever if the Province subsequently became aware of and challenged the transfer.
Note that if the Province successfully took the position that a foreign purchaser’s purchase of a title nominee’s shares constituted an avoidance transaction, the result would be that the foreign purchaser would have to pay the foreign buyer tax, but not the basic property transfer tax. That would be an odd result.
As a final point, it is worth noting that the anti-avoidance rule includes a carve-out for transactions arranged primarily for bona fide purposes other than avoiding the foreign buyer tax. Accordingly, in circumstances where the title nominee structure was set up prior to the introduction of the foreign buyer tax, presumably a foreign purchaser would have a good argument that its purchase of title nominee shares should not be caught.
The amendments to the Act which introduced the foreign buyer tax were completed with little to no input from stakeholders, and enacted on a rush basis. Although there may have been practical or political reasons for this, several issues and problems with the application of the new tax have come to light since its enactment. For example, the inclusion of seniors’ housing was likely an oversight, there is potentially a grey area as to what constitutes residential property in rezoning situations, and the new offence section appears to be broad enough to create liability for a lawyer who had a hand in preparing a property transfer tax form that turns out to be untrue. The Province should take steps to address or clarify these matters. When it does so, the treatment of a foreign purchaser’s purchase of a title nominee’s shares should also be on its list.
commercial foreign buyers Land Title Office property transfer tax Property Transfer Tax Act transaction transfer of title