Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.
Issue link: http://digital.canadawide.com/i/407986
Background Your client Ty Art O. Paine is looking to you to broker a mortgage for a large commercial purchase including land, buildings and manufacturing equipment. Much of the equipment is freestanding but some of it is attached in varying degrees to the building and land. He is working on a budget and has asked for guidance as to what parts of the property he is purchasing will attract property transfer tax ( PTT). Another of your clients, Shirley B. Roke, has asked you to broker a mortgage for the purchase of a mobile home and the acre of land on which it sits. e mobile home has a skirt hanging around it to cover the bottom 60 cm; the skirt does not touch the ground. e wheels have been le on and your client anticipates moving the mobile home in a few years to a different lot a few miles north of the current lot. e home is connected to electrical and municipal water services. e client's budget is very tight. She is asking whether she will have to pay PTT. is article sets out some points you might want to consider before responding to these clients. When does PTT apply? PTT is a land registration tax payable when an application is made at any Land Title Office in British Columbia to register changes to registered ownership of title. What is the formula for calculating PTT? B.C.'s PTT is the highest tax of its kind in Canada. e amount payable is 1% on the first $200,000 and 2% on the balance of the fair market value of the land on the date the transfer is registered. How is 'land' defined? Tangible property is either land or a chattel. Chattels, for our purposes, are movable property (e.g., free-standing machinery, a mobile home on wheels and not connected to the land). e PTT applies only to land. e Property Transfer Tax Act does not define land but the definition provided in the BC Interpretation Act applies. at definition includes all buildings and houses within the definition of land. Beyond that, case law has said that fixtures are part of the land and so attract PTT. Fixtures are chattels that are attached to the land to such a degree and in such a way that they become part of the land. Chattel or fixture? To determine whether the degree and manner of attachment is sufficient to change a chattel to a fixture, courts generally rely on the following four inquiries: 1. Chattels not attached to the land other than by their own weight remain chattels, unless the circumstances show they were intended to be part of the land. 2. Chattels attached to the land even slightly become fixtures, unless the circumstances show they were intended to continue to be chattels. 3. The circumstances that are relevant in the two inquiries above are those that show the degree and purpose of the attachment and which are obvious to see. 4. The intention of the person who attached the chattel to the land is to be determined only from the degree and purpose of the attachment that is obvious for all to see. Each case is determined based on its own unique factors although, to maintain consistency, prior decisions can provide some guidance. In answering these four questions, you will want to consider matters such as: • the manner in which the chattel is attached to the land (e.g., velcro versus bolts); • the degree to which the chattel is attached to the land (e.g., two easily removable screws versus many heavy duty bolts that are difficult to remove); • whether the attachment can be considered to be permanent or occasional considering the life of the chattel (e.g., wall-to-wall carpets given their relatively short life expectancy are generally considered to be attached permanently); and • the degree to which land (including fixtures) would be damaged by detaching the chattel from the land (e.g., destroying a part of the building to remove a wall safe). Guidance from previous cases To provide some guidance in addressing the questions raised here, consider the following outcome in the July 2014 decision of the BC Court of Appeal decision in Zellstoff Celgar Limited v. British Columbia, 2014 BCCA 279. e purchaser bought a pulp mill. Included in the purchase were 11 parcels of land (agreed between the purchaser and seller to have a value of about $15 million) and equipment and machinery (valued at the balance of the $252 million total purchase price, being about $237 million). e purchase agreement referred to the equipment as personal property (another term for chattels). e equipment was attached to the building's concrete and steel construction or was attached to other pieces of equipment with bolts. e equipment was capable of being sold separately, but only aer spending considerable time and money to detach it from the building and/or other pieces of equipment. If the equipment and machinery were not fixtures then the PPT was $286,298; if they were fixtures the PPT was $4,554,510. e court found the evidence established that the equipment was intended to be permanently attached to the land. It had been in place for about 50 years. A third party looking at the equipment would have Mortgage brokers could be liable for damages if they give the wrong advice and chattels are determined to be fixtures Chattel or Fixture? By RAY BAsi, director of policy and education 32 | fall 2014 mbabc.ca MortgageBroker pttadvice