by Joanne McPhail, Partner

Generally speaking, everyone purchasing land in Ontario must pay the government a tax – called Land Transfer Tax (“LTT”). This includes land transfers between family members and spouses, unless the transfer falls within an exception.  There are three general LTT exceptions when property is transferred between family members:  transfers between spouses, gifts, and transfers to family business corporations.

Spouses

Spouses (or former spouses) are exempt from the payment of LTT in the following situations:

• When no cash changes hands and the receiving spouse assumes encumbrances registered on the land, if applicable. Perhaps a husband would like to transfer the matrimonial home into his wife’s name - so long as any mortgages or other debts registered on the land are assumed by the wife, and no other payment is made, then no LTT will be paid;
• When the transfer is in compliance with a written separation agreement, including an agreement between the spouses to live apart; or
• The transfer is pursuant to a court order or judgment.

Gifts between Family Members

Although the Land Transfer Tax Act does not expressly exempt gifts between family members from LTT, gifts of this sort are effectively exempt. For example, assume a grandmother (the transferor) would like to transfer the family cottage to her grandson (the transferee) – as long as there is no payment given between the family members, the value of the “consideration” (the figure used to calculate LTT) will be nil, and the tax will also be nil. If there is any assumption of liabilities, regardless of whether the land is transferred as a gift, LTT must be paid based on the value of the mortgage being assumed.

Family Business Corporations

A family business corporation is a private corporation in which all issued shares are owned by members of the same family. Ordinarily, if a family member wants to transfer land to their family business corporation, they will be required to pay LTT. An exemption to this rule may apply, however, when:

• The individual transferring the property carried on business on the land (which does not include farming, leasing of real property, or a personal services business);
• The individual transfers that land and the business to a family corporation; and
• The family business corporation will continue to carry on such active business on that land.

The purpose of the transfer must be to enable the transferee corporation to continue operation of the active business on the land being transferred. For example, John Smith may own the land where he operates Johnny’s Pizzeria.  If John would like to transfer both the Pizzeria, and the land, to his family corporation, Smith Family Restaurants Inc., and the family corporation will continue to operate Johnny’s Pizzeria on the land, no LTT needs to be paid.