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Since coming to power in 2017, British Columbia’s NDP Government has preserved a loophole that allows land speculators, property flippers, and developers to transfer property without paying PTT (Property Transfer Tax) by setting up a company to own the property and transferring shares in it to transfer beneficial ownership of the property. This despite the fact that in opposition in 2016, NDP MLA and premier-to-be John Horgan had introduced a bill “Property Transfer Tax Fairness Act” to close that loophole (as the Province of Ontario had done back in 1989). Reference: https://cityhallwatch.wordpress.com/2024/09/06/housing-tax-loopholes-bc-failed-to-close-renger/
So it seems strange that the Province of BC has recently applied to the Supreme Court of Canada to appeal a BC Court of Appeal ruling that approves a RVO (reverse vesting order) taking advantage of that loophole. The purpose of the RVO is to allow the sale of an insolvent debtor’s Southview Gardens property for $72 million through a share sale in order to avoid paying $3.5 million in PTT. In total, the Province says it will lose $9 million in PTT if RVOs are granted for this and three other properties. Link: https://www.cbc.ca/news/canada/british-columbia/reverse-vesting-order-tax-avoidance-1.7414128
The Province previously argued against granting of the RVO in the Supreme Court of B.C., saying that to approve it “would be to bless the objective of avoiding a tax liability”. The judge was not persuaded, pointing out that it is commonplace in B.C. to transfer property through share sales to avoid paying PTT:
[62] Second, the Province’s arguments on this issue appear to be based on the premise that the transfer of property by means of the sale of the corporate property owner’s shares constitutes unlawful tax avoidance. However, it seems clear that, at least outside of the insolvency context, this proposition is not correct.
[63] … [I]t is common for purchasers to acquire land in British Columbia by acquiring the shares of a nominee to avoid paying PTT.
[64] In a non-insolvency context, the parties would have been permitted to carry out the transfer of the property by means of the transfer of shares of the nominee company. Indeed, it seems evident that similarly situated parties in a non-insolvency context would have done so.
[65] Therefore, this is a tax liability which is readily avoided in a non-insolvency context. The Province has not been able to satisfactorily explain why, given that premise, the proposed RVO transaction is unlawful or would attract the PTTA’s general anti-avoidance tax rules.
[66] In the Province’s submission quoted above, it refers to “specific provisions of the PTTA…which provide for…the payment of PTT when title is transferred”. It is important to emphasize that if an RVO is granted in this case, title to the Real Property will not be transferred. This is not a case in which the title will be transferred but the parties will be permitted nonetheless to evade or avoid the tax. The entire point of the RVO is to create an alternative arrangement in which there is no transfer of the property, as can readily be done without attracting tax when property is owned by a solvent company.
Reference: https://www.canlii.org/en/bc/bcsc/doc/2023/2023bcsc1476/2023bcsc1476.html
The Province appealed, but the judge in the Court of Appeal dismissed the appeal, endorsing the above reasoning, and also stating:
[27] … the Province explicitly accepts the fact that transactions of this kind are routine outside the insolvency context …
[30] … I can see no error in the judge’s conclusion that structuring a transaction to avoid the transfer of title and thereby PTT is a legitimate commercial practice outside the insolvency context. … I can see no reason why that which is legitimate and proper outside the insolvency context should be viewed differently within it.
Reference: https://www.canlii.org/en/bc/bcca/doc/2024/2024bcca246/2024bcca246.html
The conclusions of the two judges seem perfectly obvious. It appears to be high time for B.C. to close this loophole for everyone, as Ontario did over 3 decades ago. That would be infinitely more productive than going to court with feeble arguments against use of this loophole in the insolvency context.
Robert Renger
January 2025
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Robert Renger was the senior development planner for the City of Burnaby and the city’s lead for the planning and development of the UniverCity community at Simon Fraser University. See links to more articles by Robert here: https://cityhallwatch.wordpress.com/guest-writers/robert-renger/
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Concerned citizen, if you wish to take action to change this situation you might consider writing to the B.C. MLA who represents you (https://www.leg.bc.ca/members/mla-by-community). You could share with them a link to this article, and also, feel free to share with CityHallWatch copies of your correspondence at citizenYVR@gmail.com.
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