British Columbia Court Of Appeal upholds additional transfer tax assessment in foreign entity trust case

The BC Court of Appeal confirms that additional property transfer tax (ATT) applies to foreign entities, even when utilizing trust or company preparations. Authorized title issues greater than useful possession.

Introduction

A latest British Columbia Court of Appeal case, British Columbia v. 1084204 B.C. Ltd., 2025 BCCA 110, has reaffirmed the legal responsibility for additional transfer tax (“ATT”) underneath the Property Transfer Tax Act, RSBC 1996, c. 378 (the “PTT Act“) in company and trustee conditions regarding property.

Finally, the PTT Act requires that foreign entities (whether or not people or our bodies company) buying authorized title on behalf of Canadian principals should pay the ATT if it may be proven that stated foreign entities had been the “transferee” of a property transaction.

Background Details and Procedural Historical past

The Underlying Transaction

The respondent, 1084204 B.C. Ltd. (“108”), was integrated in British Columbia, however was managed by a foreign nationwide, who was the only shareholder, officer, and director of the corporate (the “Principal”). This due to this fact made 108 a “foreign entity” underneath part 2.01 of the PTT Act, topic to ATT when buying property in British Columbia.

In Might of 2019, 108 bought a property in Saanich, British Columbia (the “Property”) pursuant to an ordinary kind Contract of Buy and Sale (the “Contract”). Critically, 108 was listed because the transferee on the Contract, the Type A Freehold Transfer Type, and the Property Transfer Tax Return, and was the registered proprietor of the Property in the Land Title Workplace registry. On the Property Transfer Tax Return, 108 specified that the Property was bought by 108 to be held in trust for Yi Sui, a everlasting resident of Canada and the frequent regulation partner of the Principal.

The Preliminary Appeal

Later in 2019, the legislated minister pursuant to the PTT Act despatched 108 a Discover of Assessment indicating that 108, as a foreign entity, owed ATT on the acquisition of the Property, as 108 was a “taxable trustee”. 108 subsequently appealed this Discover of Assessment, counting on a Declaration of Naked Trust and Company Settlement (the “Trust Settlement”), which was signed by every of the Principal and Yi Sui, and which acknowledged that 108 was holding title to the Property as “nominee, agent, and naked trustee” for Yi Sui. This primary enchantment was unsuccessful, and 108 appealed additional on the Supreme Court of British Columbia.

The Appeal on the Supreme Court of British Columbia

In a 2023 choice on the Supreme Court of British Columbia[1] the chambers choose reversed the Discover of Assessment, holding that the Trust Settlement meant that the Property couldn’t be thought-about to have been bought by a foreign entity. As a substitute, the Supreme Court discovered that the Trust Settlement didn’t create a trust, however somewhat created an company relationship. The court docket due to this fact dominated that 108 having bought the Property as an agent for Yi Sui meant that the transaction wouldn’t entice ATT.

The Province then appealed the choice, giving rise to the current case.

Legislative Background

Below the PTT Act, ATT applies to transactions the place the transferee is a “foreign entity”, a “taxable trustee”, or each. Definitions for these phrases are as follows:

“foreign entity” means a foreign nationwide or a foreign company;

“foreign nationwide” means a person who’s a foreign nationwide as outlined in section 2 (1) of the Immigration and Refugee Protection Act (Canada);

“foreign company” means an organization that is among the following:

(a) an organization that isn’t integrated in Canada;

(b) until the shares of the company are listed on a Canadian inventory change, an organization that’s integrated in Canada and is managed by a number of of the next:

(i) a foreign nationwide;

(ii) an organization that isn’t integrated in Canada;

(iii) an organization that may, if every share of the company’s capital inventory that’s owned by a foreign nationwide or by an organization described in paragraph (a) of this definition had been owned by a specific individual, be managed by the actual individual;

“taxable trustee”, in relation to a taxable transaction, means a trustee of a trust in respect of which

(a) any trustee is a foreign entity, or

(b) no trustee is a foreign entity however, instantly after the registration of the taxable transaction, a beneficiary of the trust who’s a foreign entity holds a useful curiosity in the residential property to which that taxable transaction relates[.][2]

On the face of the laws, it’s clear that if the Principal had been held by the court docket to be the transferee of the Property, then ATT would apply. Nonetheless, the Principal’s argument, accepted by the Supreme Court of British Columbia, was that the Trust Settlement made the Principal a mere agent for Yi Sui, and never a transferee.

The British Columbia Court of Appeal’s Findings

The British Columbia Court of Appeal rejected the Principal’s argument, overturning the choice of the Supreme Court of British Columbia and restoring the ATT assessment.

The Court of Appeal held that, “topic to statutory exemptions, property transfer tax is payable by the individual to whom the authorized property is transferred (the ‘transferee’), no matter whether or not one other individual has useful possession.”[3] That’s to say, whatever the authorized relationship between the Principal and Yi Sui by operation of the Trust Settlement, 108 was the transferee in the transaction in regards to the Property. Since 108 was clearly a foreign entity, the ATT essentially should apply, no matter any equities that might be claimed by one of many events claiming to be an agent of the opposite.

This discovering that 108, and never Yi Sui, was the transferee was strengthened by the truth that 108, not the Principal or Yi Sui, acknowledged in the property transfer tax return it ready as transferee that it owed normal property transfer tax. The court docket merely concluded on this level that, “[regardless] of whether or not 108’s relationship with Ms. Sui might be characterised as an company or a trust, or each, 108’s legal responsibility to pay the ATT arose on the registration of the transfer of the authorized property to 108.”[4]

The matter of whether or not 108 was a “taxable trustee” underneath the PTT Act was not addressed by the Court of Appeal, because the matter had been absolutely determined and can be reversed on the foregoing company grounds. Nonetheless, the Court of Appeal did state that there was “appreciable substance to the Province’s arguments” that “(1) [a] relationship in which an agent holds authorized title for a principal can not even be a trust relationship, and (2) that naked trusts ought to be ignored for the aim of the PTT Act provisions in challenge.”[5]

Lastly, the Court of Appeal rejected 108’s try to be granted go away to lift a difficulty in regards to the constitutionality of the related provisions of thePTT Actin this case. The unique assessment of ATT underneath thePTT Acttowards 108 was restored.

Conclusion and Takeaways

This choice confirms that the PTT Act is to be strictly interpreted when assessing whether or not ATT applies to an actual property transaction on the premise of the purchaser being a foreign entity. If a transferee is a foreign entity, supplementary company and trust agreements can’t be used to keep away from paying ATT.