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“It’s a tax grab,” said one source with knowledge of the dispute. “What was created (to avoid the taxes) was perfectly legal and now the province is going back retroactively to change the rules.”

Louise Summerhill, a lawyer with Aird & Berlis, said the provincial position will be very hard to administer.

“They are probably going back 17 years to give credibility to their position. Apparently there are some transactions that have occurred on the street they feel were flagrantly done to avoid land transfer taxes,” she said.

While Ontario’s land-transfer tax is payable on all transactions involving land, there are a few exceptions. One exception is an exemption, provided by regulation, for small changes in partnerships that hold land.

The Ministry of Finance contends some taxpayers have attempted, inappropriately, to use this exemption to avoid tax on large transactions, ministry spokesman Christian Bode said.

Amendments to the regulation clarify the use of the exemption in certain circumstances, “to ensure the integrity of the (land-transfer tax) system and maintain a level playing field with those who have paid tax in similar situations,” he said.

The exemption specifically deals with situations where a person acquired an interest in a partnership that did not give rise to an entitlement of more than five per cent of the profits of the partnership in a particular fiscal year of the partnership. The reason behind the exemption is the province did not want to tax immaterial transfers of partnership interests.