The City of Montreal adopted on December 28, 2011 an increase in the transfer tax, usually called “the welcome tax”.
In Quebec, each municipality must charge a transfer tax on the transfers of buildings, in particular by sale, located on its territory. This duty, payable by the purchaser to the municipality, is usually due as from the date of the registration of the transaction.
This rise came into force on January 1, 2012 at 2,5% of the marginal rate applicable to the calculation of the transfer tax charged on the transfers of buildings for the bracket of taxable amount which exceeds 1.000.000 $.
What does this local by-law envisage?
This change to the tax regulations is a characteristic that only the City of Montreal can exert in the entire Province of Quebec. Indeed, a specific power was added to the Act respecting duties on transfers of immovables for the City of Montreal in Quebec. In Ontario, it is the City of Toronto to whom this power has been granted.
Until the end of 2011, the marginal rate applicable to the taxable amount which exceeds 1.000.000 $ was 2% on the territory of the City of Montreal. In the other cities of the Province of Quebec, the marginal rate applicable to the taxable amount which exceeds 250.000 $ is 1,5%, without increase for the brackets exceeding 500.000 $ or 1.000.000 $.
In order to discuss this rise and the possible impact on the real-estate market we contacted Stefan Fews, associated to the groups practicing Company law and commercial law, commercial real-estate law, and banking law.
Mr. Fews specified to us that this change to the regulations also took place on January 29, 2010. It is the bracket of 250.000$ and more which had undergone a rise of 0.5% (i.e. from 1.5 to 2%).
From his personal point of view, the real-estate market should not feel any consequences. The number of transactions should not decrease because, in fact, the conditions of the market will influence the decision to buy a building of more than 1.000 000,00$ and not the amount of the transfer tax.
By market conditions, one understands if the price corresponds to the sector, with the state of the building, etc...
The only influence which could have taken place was only of short duration as the advance of the real-estate transactions already in progress which have been signed in December instead of January, decided initially.
To finish we wanted to know his opinion on another future rise.
A new increase is not excluded since the City of Montreal has the power to do it. This capacity does not put any limit on the maximum %. But according to him, the rates of transfer taxes should remain with those currently in force.
This adoption of a power specific to the City of Montreal has been the occasion for many evenings of information at the time because the City had to prove that these rises would not influence the real-estate market.