On February 26, 2019, the Quebec Department of Finance introduced Bill 13, An Act to amend the Taxation Act, the Québec Sales Tax Act and other legislative provisions (the “Bill”). This Bill finally provided the draft legislation for the changes announced in Information Bulletin 2017-14, dated December 20, 2017 (the “Bulletin”), in respect of the Act respecting duties on transfers of immovables (the “Act”). The amendments are intended to allow partnerships to benefit from the exemptions in section 19 of the Act. These exemptions allow the transfer of real property between “closely related” persons free of transfer duties. Without the amendments, these exemptions applied to legal persons and natural persons only, not partnerships. These new provisions apply in respect of any transfer of real property made after December 20, 2017.
These exemptions now cover the following cases:
- Transfer by a natural person to a partnership: applies where the natural person’s share in the partnership’s profits or losses is at least 90%, from the time of the transfer and for the following 24 months. The transfer duties would not be payable if the failure to comply with this condition is attributable to the dissolution of the partnership, or if the natural person ceased to be a partner of the partnership for a reason such as death or bankruptcy.
- Transfer by a partnership to a natural person: applies if throughout the 24 months preceding the transfer (or since the formation of the partnership if it has been formed less than 24 months before the transfer) the individual’s share in the partnership’s profits or losses was at least 90%.
- Transfer by a partnership to a legal person (and vice versa) and transfer between two partnerships: this is an adaptation of the regime applicable to legal persons to partnerships. For these purposes, a partnership is deemed to be a legal person and the shares of a partnership are deemed to be shares held by the partners in proportion to their profits or losses in the partnership. As a result, the pre-existing “closely related legal persons” test, based on the criterion of at least 90% of the voting rights in a legal person, is now transposed to partnerships based on a criterion of at least 90% of the profits or losses.
Compliance with the condition whether or not a partner holds 90% of the share in the partnership’s profits or losses is determined in two stages:
i. at the time of the transfer, depending on the terms of the contract of partnership; and
ii. at any time within the 24-month period following the date of the transfer of the property, based on the transferor’s share of the partnership’s profits or losses.
Moreover, it should be noted that the disclosure mechanism, applicable when an exemption condition ceases to be satisfied, also now applies to a transfer involving a partnership.
These new measures announced in the Bill will make it possible to implement the measures discussed in the Bulletin, and to apply a neutral and equitable treatment to partnerships by closing the current gaps in the Act that imposes transfer duties on certain transfers involving partnerships.
Nevertheless, there are still several stages in the progress of this Bill before its adoption and sanction. The various measures presented are therefore subject to change.
By Nicolas Cloutier, Fred Purkey and Anthony Sylvain
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