B.C. Introduces Land Owner Transparency Registry to Record Indirect Ownership of Land

Bennett Jones LLP
Contact

Bennett Jones LLPOn November 30, 2020, Bill 23 (2019), the Land Owner Transparency Act (LOTA) will come into force together with the Land Owner Transparency Regulation (LOTR) to create the Land Owner Transparency Registry, a first-of-its-kind registry in Canada intended to record the indirect ownership of land by certain individuals.

Background

Following various reports and allegations of illicit money being used to acquire British Columbia real property, the province initiated several measures in 2018 and 2019 to identify means by which it could either limit the use of such funds to acquire interests in land or track the identities of the individuals who were ultimately providing the funds for the purchase of such interests in land. While the Provincial government intends LOTA to create additional means for government authorities, tax authorities and law enforcement to combat fraud, money laundering and tax evasion, it is clear that LOTA will have far-reaching consequences—beyond reducing illegal and nefarious activities—on day-to-day real estate transactions and the ownership of interests in land in B.C.

In launching the Registry the government is creating a second database of land ownership records that will operate in parallel to, but separate from, the Land Title Office (LTO), which records registered ownership of real property interests. The Registry will record indirect ownership of interests in land (e.g., shareholdings in a corporation, partnership interests in a partnership and beneficial interests of trust beneficiaries) in an online database operated by the British Columbia Land Title and Survey Authority (LTSA). A land transfer filed in the LTO (among other filings) will require at least one and possibly two concurrent filings in the Registry. According to the LOTR, the search functionality of the Registry is intended to be made operational on April 30, 2021, giving the government a five-month cushion to resolve all outstanding practical and technological issues in activating the Registry.

The operative disclosure and reporting language in LOTA is largely borrowed from the Information Collection Regulation made under the Property Transfer Tax Act, RSBC 1996, c.378 (PTTA). The concepts of relevant corporations, relevant partnerships and relevant trusts, and the types of disclosure contemplated in LOTA are generally (but not completely) consistent with the PTTA. We will not revisit those concepts here.

LOTA Fundamentals

LOTA requires the disclosure of the names of certain individuals (interest holders) who have an indirect interest in privately-held real property in British Columbia as well as also their key personal and contact details. Contrary to many misleading publications, the Registry is not intended to identify real property "beneficial ownership" and it does not specifically focus on the "beneficial owners" of real property, as those terms are commonly known and used at law.

Instead, LOTA focusses on the individuals who ultimately have material control over specific interests in land, in some instances over multiple layers of ownership well beyond that of the actual beneficial owner at law. In some instances this may align with the identity of beneficial owners who are individuals. However, in the majority of commercial instances in which the beneficial owner is a non-individual person, the ultimate controlling owner(s), whose identities and interests must be disclosed under LOTA, will be one or more individuals higher up an organizational chart.

When a parcel of land (for which there is a title raised and registered in the LTO) changes hands in the normal course (via the filing of the Form A Freehold Transfer at the LTO), new parallel documentation must be filed in the Registry to satisfy the LOTA requirements. Where a parcel of land is transferred at the beneficial ownership level (e.g., on the transfer of shares of a nominee corporation) and there is a change of interest holders, then no LOTA filing is immediately required at the Registry but one would have to be made within two months of the transfer to identify the new interest holders associated with that parcel.

LOTA Reporting Requirements

Reporting requirements under LOTA are required in connection with any "interest in land", which is currently defined as the following:

  • an estate in fee simple;
  • a life estate in land;
  • a right to occupy land under a lease that has a term of more than 10 years;
  • a right under an agreement for sale to occupy land or to require the transfer of an estate in fee simple; or
  • an estate, right or interest to be prescribed by regulation, which could eventually include interests such as mortgages, options to purchase and rights of first refusal.

Under LOTA, upon the registration of an interest in land at the LTO, all transferees (including individuals) must file a transparency declaration pursuant to s. 10 of LOTA (the Declaration). A transferee must disclose in its Declaration whether the transferee is a reporting body, being a relevant corporation, a trustee of a relevant trust or a partner of a relevant partnership that is required to file a transparency report under either sections 12(1), 15(1) or 15(4) of LOTA (the Report). If the transferee is not a reporting body, then no further filings at the time of transfer are required.

For the purposes of LOTA:

  • a relevant corporation means a corporation or limited liability company but does not include a corporation or limited liability company that is included in Schedule 1 of LOTA;

  • a relevant partnership means a general partnership, limited partnership, limited liability partnership, professional partnership or foreign partnership within the meaning of the B.C. Partnership Act, a prescribed partnership and any legal relationship created in another jurisdiction that is similar to any of the legal relationships described in this paragraph; and

  • a relevant trust means an express trust, including a bare trust, a prescribed trust and any legal relationship created in another jurisdiction that is similar to any of the legal relationships described in this paragraph.

If a transferee identifies itself as a reporting body in a Declaration, then the transferee must also file a Report, which must be filed concurrently with the Declaration. Without filing the Declaration and, if applicable, the Report, the LTO registrar is required to refuse the registration of the relevant interest in land in the LTO. Reporting bodies will be required to disclose detailed information within the Report including (but not limited to) the name, date of birth, address, social insurance number, tax residency, certain contact information and information regarding the interest in land indirectly owned by relevant interest holders. The information contained in a Declaration or a Report is available for inspection by an enforcement officer appointed by the minister under the Public Services Act, unless the individual is under 19, is incapacitated, or the individual applies to omit information as it is a health or safety risk, and that application is approved by the administrator appointed by the Chief Executive Officer of the LTSA as set out under Part 4 of LOTA.

A Report must identify who the ultimate interest holders are of the interest in land being transferred. Interest holders required to follow such disclosure obligations are those individuals who hold either (i) a "significant number of shares" in a corporation which equates to 10 percent of the shares in a relevant corporation or shares which carry 10 percent or more the voting rights, (ii) a beneficial interest in land, or (iii) an interest in land through a partnership.

It is important to note, it is only those individuals who fall within the definition of either beneficial owner, corporate interest holder or partnership interest holder, not all owners of interests in land, who will be required to disclose the required information. Pursuant to s. 21 of LOTA a reporting body is required to take reasonable steps to obtain and confirm the accuracy of the information reported. However, failure to comply with the requirements with respect to obtaining and confirming such information could result in significant penalties, as noted below.

The initial versions of the Reports to be filed at the Registry make clear that not only is certain personal information required to be included with respect to interest holders, but also that generic descriptions following the language of LOTA will be required as to how an individual is an interest holder, without providing specific details.

Accordingly, for purchasers and their advisors, it will soon be mandatory for the full extent of ownership structures to be disclosed by a purchaser to its lawyer prior to closing real property transactions so that a Declaration and, if required, a Report can be prepared for filing with the Registry at closing. It is important to note that all of this information will not need to be disclosed either to a vendor as part of the closing (absent specific contractual language requiring such disclosure) or in a Report, as only information regarding individuals who meet the LOTA definition of "interest holders" at the end of the structure must be submitted.

It should also be noted that s. 24 of LOTA requires that before filing a Report, a reporting body must take reasonable steps to give written notice of the filing of the Report to each interest holder and settlor who is identified in the Report. The Report itself requires confirmation that notice was given and, if notice was not given then, pursuant to s. 24(2)(b) of LOTA, a summary of the steps taken to give notice must be provided. This notice will be an additional transaction document that will need to be prepared and delivered.

In addition to the LTO filings required by a transferee who acquires an interest in land as contemplated by LOTA, in 20201 the government added s. 17.1 to LOTA requiring a corporation, trustee or partner that is a registered owner of an interest in land to give notice to the Registry if, after the corporation, trustee or partner has filed a Report, the corporation, trust or partnership ceases to be, respectively, a relevant corporation, relevant trust or relevant partnership. This notice must be filed within two months after the date on which the corporation, trust or partnership ceases to be, respectively, a relevant corporation, relevant trust or relevant partnership.

Indirect Control

The LOTR has extensive language to address indirect control exercised through a "chain of relevant intermediaries". A relevant intermediary is defined to include any person that is one or more of the following and is controlled by another person: (1) a relevant corporation, (2) a relevant partnership, (3) an individual, relevant corporation or relevant partnership that is a trustee of a relevant trust, (4) an individual, relevant corporation or trustee of a relevant trust that is an agent, and (5) an individual, relevant corporation, relevant partnership or trustee of a relevant trust that is a personal or other legal representative.

The purpose of these provisions is to ensure that in examining the ownership structure, one does not stop at the bottom of a chain of relevant intermediaries or stop upon reaching an individual who is still subject to some prescribed element of control.

These new elements and nuances mean that a significant amount of due diligence and effort will be required on the part of purchaser's counsel to work with clients to correctly identify the identity of the individuals who are the ultimate owners or controlling individuals of any registered owner of an interest in land, which ultimate owners are considered a relevant corporation, a relevant partnership or a trustee of a relevant trust. The B.C. government has gone to significant and detailed lengths in its attempt to capture various means by which direct and indirect ownership of interests in land may be controlled by related or unrelated third parties. Counsel will need to pay close attention to the requirements in LOTA and LOTR to ensure that correct disclosures are made in any required Declaration and Report.

Excluded Corporations and Trusts

While LOTA is broad in scope, the legislation does exclude from the definitions of relevant corporate and relevant trust entities that are identified, respectively, in Schedules 1 and 2 to LOTA. Schedule 1 contains exclusions (among others) from the definition of relevant corporation for a corporation or limited liability corporation that is:

  • a corporation that is a reporting issuer or reporting issuer equivalent with the meaning of the B.C. Business Corporations Act;
  • a corporation that is listed on a designated stock exchange within the meaning of section 248(1) of the federal Income Tax Act (ITA);
  • a strata corporation within the meaning of the B.C. Strata Property Act;
  • a savings institution, insurance company or trust company;
  • a pension fund society within the meaning of the B.C. Pension Fund Societies Act; or
  • a wholly owned subsidiary (as that term is defined in the B.C. Business Corporations Act) of a corporation to which any of the exclusions in Schedule 1 apply.

Similarly, Schedule 2 contains exclusions (among others) from the definition of relevant trust for any trust that is:

  • a real estate investment trust, mutual fund trust or SIFT trust within the respective meanings of the ITA;
  • property vested in a person licensed or appointed under the federal Bankruptcy and Insolvency Act;
  • spousal or common-law partner trust within the meaning of the ITA;
  • a charitable or testamentary trust; or
  • a trust the trustee of which is an administrator of an estate.

LOTA has provided for the flexibility to have additional exclusions added to Schedules 1 and 2 by regulation.

Important Timelines

The following circumstances will trigger the requirement to report:

  • for any transfers of land in the LTO, a Declaration and, if applicable, a Report must be filed at the time of filing an application to transfer an interest in land with the LTO;
  • for individuals who are currently holders of an interest in land (as of November 30, 2020), they have until November 30, 2021, to file a Declaration and, if applicable, a Report as to the current interest in land held as at November 30, 2020; and
  • if there is a change of interest holder that does not result in an LTO filing, then LOTA requires a reporting body to file a new Report within two months after the reporting body becomes aware, or reasonably ought to have become aware, that (a) a previous Report no longer accurately discloses the current interest holders, or (b) a determination of incapacity has been made in respect of an interest holder.

Implications for Leases

Section 21 of the LOTR adds clarity around the obligations to file Declarations and Reports in respect of registered leasehold interests as it exempts the filing obligations of any relevant corporation, trustee of a relevant trust or partner of a relevant partnership that hold a registered leasehold interest for which the remaining term of the lease (excluding renewal/extension terms) is 10 years or less.

Accordingly, upon either the filing of a lease at the LTO, or the application of s. 15(1) of LOTA with respect to existing registered leases (determined as at November 30, 2020), if the current remaining term of the registered lease is 10 years or less then neither a Declaration or Report needs to be filed2.

Implications for Individuals Holding Registered Interests

As noted above, another key provision in the LOTR is s. 19, which confirms that all "pre-existing" owners of real property in B.C. will have until November 30, 2021, to file a Report with respect to all interests in land recorded in the LTO so that its records are complete without having to wait for transfers to be filed. This applies to any interest in land to which s. 15(1) of LOTA applies.

As long as an individual is not a trustee of a relevant trust (which includes a bare trust) then LOTA will not apply and, in particular, s. 15(1) will not apply to require a Report to be filed on or before November 30, 2021. Importantly, there is no obligation for individuals holding a registered interest in land to file a Declaration pursuant to s. 10 of LOTA to identify whether or not they are a reporting body.

Distinctions Between Ownership Thresholds Applied Under LOTA and the B.C. Business Corporations Act

The threshold for ownership disclosure under LOTA is 10 percent of the shares or voting shares of a corporation, whereas the threshold under the B.C. Business Corporations Act in respect of the corporate transparency registry requirements is 25 percent (which is, in turn, consistent with the Canada Business Corporations Act).

With respect to partnerships, the LOTR adds clarity around the disclosure obligations that are not addressed in LOTA. Section 7 of the LOTR provides that, with respect to a relevant partnership, disclosure is required in respect of any partner who is not a limited partner and also for any limited partner of the relevant partnership who is (1) entitled to at least 25 percent of the profits of the partnership assets, (2) is entitled on wind up to at least 25 percent of the assets of the partnership, (3) has at least 25 percent of the votes in the partnership management, or (4) has the right to appoint or remove the majority of the partnership's management.

Release of Disclosed Information

In line with the goal of creating transparency under LOTA, the public will be able to access some of the information filed in Reports by conducting a search of the Registry. This has raised obvious concerns as to security and privacy; however, more sensitive information included in required Report disclosures, such as social insurance numbers, tax details and dates of birth, will only be available to law enforcement agencies and government agencies such as Canada Revenue Agency.

As an added security measure, information disclosed in a Report will not be accessible to the public until at least 90 days after the Report has been filed with the Registry. The purpose of this delay is to provide individuals with an opportunity to request that some or all of the individual's disclosed information be concealed from the public record if the health, safety or mental health of an individual is at risk. As an additional security measure, the LTSA is required to conceal information with respect to individuals under the age of 19 and those incapable of managing their financial affairs.

Only primary identification information, as defined under LOTA, which is included in a Report will be available for search by the public. For individuals this will include the name, citizenship information and city and province where the individual resides. In the case of corporate entities or partnerships, primary identification information will include name of entity, address, and information as to applicable jurisdiction(s) in which such entity is registered. A Report may be inspected by tax authorities, law enforcement and by regulators as such terms are defined under LOTA. In the case of inspections by such authorities, the entire Report may be reviewed for the purposes set out under LOTA.

As noted, the B.C. government currently intends for the search functionality of the Registry to be available as of April 30, 2021.

Penalties

A reporting body that fails to file a transparency declaration or provides false or misleading information in a Report may be subject to administrative penalties no more than the greater of (i) $50,000 for corporations or other entities or $25,000 for individuals; and (ii) 5 percent of the assessed value of the property to which the Declaration or Report relates. Audits of certain applications will be conducted by the regulator to determine whether penalties should be enforced.

Failure to file a Report or the provision of false information may constitute a violation under LOTA and LOTR, which violation could trigger a penalty of no more than the greater of (i) $25,000 to $50,000 for individuals or $50,000 to $100,000 for corporations or other entities; and (ii) 15 percent of the assessed valued of the property to which the Declaration or Report relates.

Taxation of Beneficial Interest Transfers

Many people have inferred that LOTA will soon allow the province of British Columbia to tax the transfer of beneficial interests in land, as those interests are known under the Income Tax Act. When Bill 23 was in committee, the opposition specifically asked Finance Minister James whether LOTA would result in additional taxation of the owners of beneficial interests in land. The Minister quickly and unambiguously responded that it would not.

With the NDP now having been re-elected with a majority of seats in the B.C. Legislature, and Finance Minister James having retired from politics, that response may now be moot; however, it is worth noting, as mentioned above, that LOTA does not require the disclosure of "beneficial owners" as we have come to know them as distinct from the "legal" owners of real property under the federal Income Tax Act. The information to be recorded in the Registry will not necessarily include the beneficial ownership of real property (although it will in some instances). Accordingly, while the Registry does provide a framework that could with some modifications be used to track transfers of beneficial ownership, LOTA in its current form will not allow for that to happen.

Notes

  1. See Bill 13 – 2020, Miscellaneous Statutes Amendment Act, 2020.
  2. Section 21 of LOTR defines "remaining term", in relation to a lease to exclude "any periods for which the lease may be extended or renewed".

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bennett Jones LLP | Attorney Advertising

Written by:

Bennett Jones LLP
Contact
more
less

Bennett Jones LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.