Land transfer tax when a business purchase includes property in Quebec

In Quebec, the tax on a property transfer is a duty collected by the municipality, not by the province. The Act respecting duties on transfers of immovables (CQLR, c. D-15.1) obliges each municipality to collect duties on the transfer of any immovable on its territory. This page, written in English from the Act and the Government of Québec’s own page on the subject, explains how that applies when a business purchase includes a building or other immovable. It covers Quebec only (see the national overview and the Quebec buying guide). The duty has its own basis, its own treatment of leases and equipment, and a disclosure step with a fixed deadline.

A municipal duty with a provincial Act

The Act states that every municipality must collect duties on the transfer of any immovable situated within its territory, and that the transferee is liable to the municipality for payment. The Government of Québec’s page says the same in French: a municipality must collect the duty from the new owner of an immovable on its territory, subject to certain exemptions. For a buyer, the practical point is that the duty is owed to the municipality where the property sits, and the Act makes the transferee liable for it, with the transferor jointly and severally liable in the cases section 5 lists.

The basis is the greatest of three amounts

The Act sets the basis of imposition as the greatest of three amounts: the consideration furnished for the transfer, the consideration stipulated for the transfer, and the market value of the immovable at the time of the transfer. A purchase agreement that allocates a low figure to the building does not by itself fix the basis. If the allocation of price between the business and the property matters to the parties, ask how the greatest-of-three rule applies to it.

Buildings, attached equipment and leases

Where a transfer covers both corporeal property and movables that are permanently physically attached or joined to an immovable without losing their individuality, and that are used to operate an enterprise or carry on activities, the Act applies the word “immovable” to the whole in all its provisions except paragraph a of section 5 and section 9. The Act also defines “transfer” to include a lease only if the period from the date of transfer to the end of the term, including any extension or renewal mentioned in the lease, exceeds 40 years. Check the premises lease for both its term and any renewals it mentions.

When the duty is due and the notice of disclosure

The duties are payable from the date of the transfer. If the deed is not registered in the land register on or before the ninetieth day after the date of the transfer, a notice of disclosure containing the information the Act lists must be filed with the municipality on or before that ninetieth day. The Act also requires the notice of disclosure to state whether the transfer is of both a corporeal immovable and those attached movables. The Government of Québec says that failing to disclose within the 90-day period leads to payment of a “droit supplétif” to Revenu Québec, with interest. Ask who will register the deed, when, and who will file a notice if registration is delayed.

Exemptions and the look-back

The Act lists exemptions. One applies where a natural person transfers an immovable to a legal person if, immediately after the transfer, the transferor owns shares carrying the share of voting rights the Act specifies. Another applies to certain transfers from a legal person to a natural person who, throughout the 24 months before the transfer (or since the legal person was constituted, if that is shorter), owned shares carrying the share of voting rights the Act specifies. A further exemption covers transfers between two closely related legal persons. The Act then requires a transferee exempted under the first of these to pay the duties otherwise payable if, within the 24 months after the transfer, the transferor’s voting rights in the transferee fall below the level the Act sets, and a transferee exempted as a closely related legal person to pay them if the parties cease to be closely related in that period, subject to the exceptions the Act lists. The Government of Québec adds that a municipality may, by resolution, provide for a capped compensatory amount, called a “droit supplétif”, in exempt cases.

Several buyers and the deed’s particulars

Where a transfer is made to several transferees, the Act makes them jointly and severally liable for payment of the duties, so each one is answerable to the municipality for the whole amount. The Regulation respecting the manner of recording particulars required in the deed of transfer of an immovable applies where registration is applied for by means of the deed of transfer, and it requires certain particulars the Act lists to be consolidated at the end of the deed, immediately before the closing of the deed. Ask the notary preparing the deed to confirm that the particulars the Act and the Regulation require are in it.

• The deed of transfer and the date it will be registered, so the 90-day notice deadline can be tracked.
• A description of the movables that are permanently attached to the building and used in the enterprise, and how the parties treat them.
• The premises lease, with its term and every extension or renewal it mentions, to test it against the Act’s 40-year line.
• The municipality’s own information for the property, since the duty is collected on its territory and a municipality can, by resolution, provide for a compensatory amount in exempt cases.
• Any exemption claimed, with the facts about share ownership and the 24-month conditions the Act attaches to it.