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Passed by the legislative assembly on May 16, 2019, and approved by Order in Council on September 20, 2020, the British Columbia Land Owner Transparency Act (the “Act“) comes into force on November 30, 2020. The Act creates the Land Owner Transparency Registry (the “LOTR“), which will require the mandatory disclosure of all beneficial land ownership in British Columbia. With the intent of combating fraud, money laundering, and tax evasion, the Act will make information on beneficial land owners available to prescribed government entities, law enforcement agencies, and the public.
The Land Owner Transparency Regulation (the “Regulation“) also comes into force on November 20, 2020, and includes important definitions, requirements for declarations and reporting, and rules concerning access to the LOTR.
What is the LOTR?
The LOTR is a government-maintained registry that will provide information about individuals who are deemed by the Act and the Regulation to have an indirect ownership interest in land in British Columbia. On April 30, 2021, the LOTR will become searchable by prescribed government entities, law enforcement agencies, and the public. While those prescribed government entities and law enforcement agencies will have full access to all information in the LOTR, only limited information will be available to the public.
As of November 30, 2020, every application at the Land Title Office (“LTO“) to register an interest in land must be accompanied by a new ‘Transparency Declaration’ and, depending on the nature of the applicant, a new ‘Transparency Report’.
An ‘interest in land’ pursuant to the Act includes:
Reporting under the LOTR
Persons who are acquiring an interest in land are responsible for filing ‘Transparency Declarations’, and if those persons are considered a ‘Reporting Body’ pursuant to the Act, they will also be required to file a ‘Transparency Report’.
A ‘Reporting Body’ includes:
A ‘Relevant Corporation’ must disclose in its ‘Transparency Report’ information for all “Corporate Interest Holders”, which are individuals who:
If another corporation meets either of the two requirements above with respect to a ‘Relevant Corporation’, information must be disclosed for individuals who meet the foregoing criteria for that corporation.
A ‘Relevant Trust’ must disclose in its ‘Transparency Report’ information for all ‘Beneficial Owners’, which are individuals who:
A ‘Relevant Partnership’ must disclose in its ‘Transparency Report’ information for all ‘Partnership Interest Holders’, which are:
Information that must be disclosed for individuals in a ‘Transparency Report’ includes:
Information that must be disclosed for corporations in a ‘Transparency Report’ includes:
Information that must be disclosed for a ‘Relevant Trust’ in a ‘Transparency Report’ includes:
In practice, ‘Transparency Declarations’ and ‘Transparency Reports’ will need to be filed concurrently with all LTO applications for the transfer of land.
The disclosure requirements of ‘Reporting Bodies’ are ongoing, which means that a ‘Reporting Body’ must file an updated ‘Transparency Report’ every time its interest holders change, regardless of whether there is a change in the registered ownership of land in the LTO. There is also a requirement that ‘Reporting Bodies’ file a ‘Transparency Report’ if they cease to be a ‘Relevant Corporation’, ‘Relevant Trust’, or ‘Relevant Partnership’.
Pre-Existing Owners And Retroactive Disclosure
The Regulation requires that ‘Reporting Bodies’ that own an interest in land when the Act comes into force must file a ‘Transparency Report by November 30, 2021. This will affect most corporate interest holders who hold a beneficial or indirect interest in land through a corporate ownership structure. If a pre-existing beneficial owner transfers its registered interest in land prior to November 30, 2021, that beneficial owner is exempt from the filing requirement because the . purchaser will be required to file a ‘Transparency Declaration’ and, if the purchaser is a ‘Reporting Body’, a ‘Transparency Report’ as well. If the purchaser only acquires a beneficial ownership interest before November 30, 2021, then they must file a ‘Transparency Report’ by that date as a one-time obligation.
Importantly, these requirements do not apply to individuals who hold an interest in land as legal and beneficial owner.
Corporate Interest Holder – a “corporate interest holder” is an individual who directly or indirectly, through beneficial ownership or indirect control of a significant number of shares, owns or controls 10% or more of the issued shares or 10% or more of the voting rights of a relevant corporation. For most standard corporate structures, determining who controls the shares or the voting rights of a relevant corporation is a relatively simple task. . Where a complex corporate structure has been established, with multiple intermediaries involved, compliance with the disclosure requirements under the Act will be far more onerous.
The Regulation provides two definitions that will help land owners and professionals determine who has “indirect control” of a ‘Relevant Corporation’, ‘Relevant Trust’, or ‘Relevant Partnership’.
The definitions are as follows:
Relevant intermediary – means a person that is one or more of the following and is controlled by another person:
Chain of relevant intermediaries – means a group of two or more relevant intermediaries having a hierarchical relationship to each other in which:
The definitions above add some clarity to the requirements surrounding the level of disclosure required for indirect ownership. With layered corporate ownership structures where an individual, who is not a relevant intermediary, has indirect control over a share of a relevant corporation, the Regulation indicates that disclosure of the first relevant intermediary in a chain of relevant intermediaries, and disclosure of the last relevant intermediary in the chain, who is the registered owner of the share, is required.
The Regulation also provides a definition of “control” in relation to different reporting bodies. ‘Transparency Reports’ will require the disclosure of information relating to interest holders who have control of ‘Relevant Corporations’, ‘Relevant Partnerships’ or ‘Relevant Trusts’ as follows:
Relevant Corporations – a person controls a ‘Relevant Corporation’ if that person has the right to elect the majority of the directors of the ‘Relevant Corporation’.
Relevant Trusts – a person controls a trustee of a ‘Relevant Trust’ if that person, in the case of a trustee that is the registered owner of a share of a ‘Relevant Corporation’, has the power to direct how the trustee exercises any of the rights attached to the share. If the trustee controls a ‘Relevant Intermediary’ below the trustee, a person controls a ‘Relevant Intermediary’ if that person has the power to direct how a trustee exercises control over that ‘Relevant Intermediary’.
Relevant Partnerships – a person controls a ‘Relevant Partnership’ if:
Notably, the definition of ‘control’ for ‘Relevant Partnerships’ will alleviate the disclosure requirement for minority-limited partners who fall below this 25% threshold. For complex ownership structures with various layers of ownership, establishing which persons fall under the applicable definitions and preparing corresponding ‘Transparency Reports’ will undeniably increase costs to the real estate industry, and will likely lead to delays in closing some transactions.
Leases and Exemptions
Any lease with a term that is greater than ten years is considered an ‘interest in land’ subject to the Act.
The Regulation has clarified that the “remaining term” of a lease for the purposes of the Act does not include any extension or renewal term(s), and that a ‘Relevant Corporation’, trustee of a ‘Relevant Trust’ or partner of a ‘Relevant Partnership’ are not required to file a transparency report if the interest in lands to be acquired is a lease that, on the date of the application is made in the LTO, has a remaining term of ten years or less.
Further, ‘Reporting Bodies’ who are registered holders of a leasehold interest in land with a remaining term of ten years or less as of November 30, 2020 are not required to file a transparency report when the Act comes into force. Holders of registered leasehold interests in land who become a ‘Reporting Body’ after the Act comes into force are also not required to file a ‘Transparency Report’ if the lease has a remaining term of ten years or less.
Administrative Penalties and Offences
If a ‘Reporting Body’ fails to file a ‘Transparency Report’, they may be subject to administrative penalties, and could be found guilty of an offence under the Act. ‘Reporting Bodies’ have until November 30, 2021 to comply with the Act.
Property Transfer Tax (“PTT”) On Beneficial Transfers
As of the date of this bulletin, the government of British Columbia has not amended the Property Transfer Tax Act to require the payment of PTT on the transfer of a beneficial interest in land. It is uncertain as to whether, or when, the Provincial government may make the transfer of a beneficial interest in land subject to PTT.
With the Act coming into force and the LOTR being operational on November 30, 2020, all ‘Reporting Bodies’ involved in real estate transactions will need to be mindful of the new disclosure and reporting requirements under the Act.
‘Reporting Bodies’ will be responsible for the cost of preparing and filing ‘Transparency Declarations’ and ‘Transparency Reports’ by November 30, 2021, unless they transfer their interest in land before that date. ‘Reporting Bodies’ will also have to review all of their registered leases to confirm whether the remaining term of their lease is 10 years or more as of November 30, 2020.
Individuals and corporations should start preparing now for the additional time and costs that compliance with the Act and the Regulation will require for real estate transactions in British Columbia on and after November 30, 2020.
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