Transfer tax
Learn about taxes pertaining to transfers of electricity assets.
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Overview
Effective November 7, 1998, municipalities and municipal electricity utilities (MEUs) that transfer an interest in electricity assets to another person are subject to a 33% transfer tax on the fair market value of those assets.
In 2009, Ontario introduced a permanent transfer tax exemption for transfers of electricity assets among publicly owned utilities to encourage municipalities to enter into consolidation transactions. A number of primarily public‑to‑public mergers have occurred in the sector since 2009.
In 2015, Ontario introduced time‑limited relief on taxes pertaining to transfers of electricity assets for all MEUs, including transfers to the private sector, effective January 1, 2016. These incentives were extended twice.
Between January 1, 2016 to December 31, 2024, Ontario provides time‑limited relief on transfer tax as follows:
- reduces the transfer tax rate from 33% to 22%
- exempts MEUs with fewer than 30,000 customers from the transfer tax
Amendments have been made to Ontario Regulation 124/99 to extend the existing exemption from the transfer tax for MEUs with fewer than 30,000 customers until December 31, 2028. Additionally, a temporary reduction of the transfer tax rate from 22% to 0% will be provided for MEUs with 30,000 or more customers, effective from January 1, 2025 to December 31, 2028.
This enhancement ensures that all MEUs, regardless of their number of customers, be subject to a transfer tax rate of 0% for transfers of electricity assets from January 1, 2025 to December 31, 2028.
These rules are effective for any MEU with a related Merger, Acquisition, Amalgamation and Divestiture application before the Ontario Energy Board (OEB) before January 1, 2029, and a written agreement completed before January 1, 2029, provided the agreement is not materially changed thereafter.
For more information on these measures, see Time-Limited Relief on Taxes Pertaining to Transfers of Electricity Assets.
Ontario is committed to working with all levels of government to provide support to MEUs to encourage voluntary consolidations, incentivize greater capital investment in infrastructure and ensure better service to customers.
PILs deemed disposition rules
MEUs, and Ontario Power Generation Inc. and the corporation’s subsidiaries, that are exempt from federal and Ontario income tax, must make PILs under the Electricity Act, 1998 to the Ontario Electricity Financial Corporation. PILs are equal to the federal and Ontario income tax the MEU would pay if it were a taxable corporation.
A MEU that ceases to be exempt from federal and Ontario income tax is deemed to dispose all its assets at fair market value, with any tax gain arising on the deemed disposition being subject to PILs (PILs deemed disposition rules). Ontario Power Generation Inc. and the corporation’s subsidiaries are also subject to PILs deemed disposition rules.
Any MEU’s capital gains arising under the PILs deemed disposition rules are exempt from PILs for the period between January 1, 2016 and December 31, 2028.
The exemption is effective for any MEUs with a related Merger, Acquisition, Amalgamation and Divestiture application before the OEB before January 1, 2029, and a written agreement completed before January 1, 2029 provided the agreement is not materially changed thereafter.
PILs and dispositions of partnership interests
O. Regs. 124/99, 162/01 and 207/99 to the Electricity Act, 1998 have been amended to adopt federal anti‑avoidance measures set out in section 100 of the Income Tax Act (Canada). The measures are intended to prevent the avoidance of PILs through dispositions of partnership interests made directly, or indirectly, as part of a series of transactions to a person who is not subject to PILs, or to a partnership whose members are not all subject to PILs.
Holding companies
Past payments in lieu of federal and provincial tax may apply to reduce the transfer tax liability of a municipal corporation or municipal electricity utility.
Amendments recently made to the Electricity Act, 1998 now avail a municipal electricity utility’s PILs credits to reduce the transfer tax payable by a municipal corporation’s intermediary holding company that disposes of the municipal corporation’s indirect interest in the municipal electricity utility.
Background
As part of the restructuring of the electricity sector, municipalities were given ownership of their MEUs, which has provided them with a source of income and the potential to realize significant proceeds if they sell their MEUs.
Historically, the government has encouraged consolidation of the electricity sector through exemptions from the transfer tax for public-to-public sales or mergers of local distribution companies.
Ontario has since implemented additional time-limited relief on taxes pertaining to transfers of electricity assets for all MEU PILs payers, including transfers to the private sector to encourage further consolidation.
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