Lawyers need clarity on tax changes affecting real estate transactions
By Jennifer Pritchett, Associate Editor
A package of provincial policy measures designed to cool the Greater Golden Horseshoe housing market raises serious issues for real estate lawyers and must be clarified immediately “to avoid chaos and unintended consequences,” says Eldon Horner, past-chairman of the Federation of Ontario Law Associations (FOLA).
“Our concerns are not with the specific policies — we will leave that for others to comment on — but with the process and uncertainty that surrounds the hurried implementation of these measures,” he writes in a letter to Minister of Finance Charles Sousa.
The government initiated a number of new requirements for the land transfer tax filings that lawyers make on behalf of their clients, including a disclosure statement relating to whether the property is being purchased by, or on behalf of a foreign person or corporation. One change, the Non-Resident Speculation Tax (NRST) of 15 per cent, will be applied to the purchase of residential property in the Greater Golden Horseshoe by people who aren’t citizens or permanent residents of Canada.
Merredith MacLennan, FOLA’s real estate committee chairwoman, says it’s critical that lawyers understand the changes to ensure they are in compliance.
“The speed with which these changes were initiated has resulted in great confusion and lawyers across Ontario are unclear about what specific information is required,” she says.
“There are also questions regarding the level of evidence required to obtain the required information and concerns that lawyers now will be 'agents of the state' in the collection and verification of this information and new tax.”
The government announced the changes on April 18 with some to be enacted by lawyers less than a week later on April 24, MacLennan says.
“Some of the forms solicitors were required to use were not even available until April 23,” she says.
After FOLA presented its concerns about the new requirements in the first of two letters to the ministry, the province instituted a two-week transition period for the NRST requirement. This meant the additional information, collected through the new electronic form on Teranet eXpress, became mandatory as of May 5.
In its response letter to FOLA, the ministry says it will be setting up meetings with the federation, the Law Society of Upper Canada and other legal organizations to discuss the new requirements.
MacLennan says some lawyers remain unclear about the potential liability they may be exposed to if a false statement is made on the new form, or if the purchaser changes their mind after the transaction closes and decides to lease the property instead of occupying it themselves.
“For example, is the lawyer guilty of an offence even if the client misleads them?” she asks.
The ministry says lawyers would not face penalties if they are unaware that information included in the form is false or incomplete.
“The Ministry of Finance’s interpretation is that section 6 of the Land Transfer Tax Act, and clause 6(1)(a), in particular, creates a mens rea offence, which requires that the Crown prove that the person charged willfully committed the offence,” it says in its letter to FOLA.
“Therefore, if a client lies to his or her lawyer and that lawyer is not in a position to determine if the client is lying, the lawyer would not be subject to a charge under section 6. A lawyer would potentially be subject to a charge under section 6 where there was evidence that the lawyer had knowledge that his or her client was lying at the time the false statement was made.”
MacLennan says FOLA is “now pushing the ministry to better publicize this information so lawyers have that assurance.”
As well, she says, the new reporting requirements might have an impact on fees as lawyers consider charging clients more to account for the additional time to complete the forms.