If you’re buying a home, you’ll be paying several fees in addition to the price paid for the home itself. Among all these additional expenses is the land transfer tax, which residents of Ontario are required to pay when they take possession of real property. It’s always the buyer who pays land transfer tax in Ontario when they buy a property, never the seller.
But what exactly is the land transfer tax in Ontario and what should buyers know about it?
Land Transfer Tax in Ontario – Definition
When you purchase property in Ontario, you will be expected to pay a land transfer tax to the province once the deal closes. The amount paid for this specific real estate tax is typically based on the price paid for the property, as well as the amount that remains on the mortgage that’s assumed as part of the deal.
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The Ontario land transfer tax is paid when the deed to the property is transferred over to you on closing day, which is typically arranged by a real-estate lawyer.
Additional Tax For Non-Residents
As of April 21, 2017, buyers who are not considered to be citizens or permanent residents of Canada and are buying properties located in the Golden Horseshoe area of Southern Ontario, must pay a 15% tax. Referred to as the Non-Resident Speculation Tax, this fee is applicable to foreign buyers in addition to the province’s existing land transfer tax.
To learn more about the 15% Foreign Homebuyer’s tax in Toronto and Victoria, look here.
How is Land Transfer Tax Calculated?
In the province of Ontario, the amount that buyers must pay towards land transfer tax is determined based on the value of the property. This includes the purchase price of the property, any liabilities or benefits that come with the purchase, and the cost of improvements.
The following are the rates charged according to the value of the property:
- Up to $55,000 inclusive – 0.5%
- Over $55,000 to $250,000 inclusive – 1.0%
- Over $250,000 to $400,000 inclusive – 1.5%
- Over $400,000 – 2.0%
- Over $2,000,000 with land that features one or two single-family homes – 2.5%
To illustrate this calculation, let’s assume a property has been purchased for $350,000.
- $55,000 (the first tax bracket) x 0.5% = $275
- $195,000 ($250,000 – $55,000, representing the next tax bracket) x 1.0% = $1,950
- $100,000 ($350,000 – $250,000, representing the next tax bracket) x 1.5% = $1,500
- TOTAL LAND TRANSFER TAX = $3,725
In the above example, you would be required to pay $3,725 in land transfer tax based on a $350,000 home purchase.
Land Transfer Tax Ontario For First-Time Homebuyers
First-time homebuyers are eligible for a land transfer tax rebate. For those who are purchasing their very first home, there is a $4,000 maximum tax rebate on the land transfer tax in Ontario. Based on the rates associated with this tax, the rebate will cover the entire tax for properties up to a purchase price or value of $368,333.
First-time buyers of properties with a purchase price higher than $368,333 will receive the entire $4,000 tax rebate and will have to pay whatever remains on the balance of the land transfer tax.
In order to be considered a first-time homebuyer in Ontario, you must:
- Be a Canadian citizen or permanent resident of Canada
- Be aged 18 years or older
- Live in the property within 9 months of buying it
- Never have owned a property previously
- Apply for the rebate within 18 months of buying the property
If you are married, your spouse may not have owned any real estate anywhere in the world either while being married to you. However, they may have owned property at one time before having married you. Also, if the property you buy is a new build, it needs to qualify for a home warranty.
Want to know how owing taxes affects your ability to buy a house? Read this.
Claiming The Ontario Land Transfer Tax Rebate
In order to claim this tax rebate, a tax rebate application form must be filled out and submitted. An immediate refund can be granted after the land transfer tax is registered and taxes are appropriately filed and paid. If you don’t claim this rebate when you register the land transfer tax, you will need to pay the entire tax amount and make a rebate claim within 18 months.
What’s the difference between a tax credit and a tax deduction in Canada? Find out here
Ontario Land Transfer Tax Exemptions
A tax exemption excludes taxpayers from paying certain taxes – including the land transfer tax in Ontario – and can effectively reduce the amount of taxable income during tax time. There are certain circumstances whereby an exemption to the Ontario land transfer tax may be granted when buying real estate. Land transfer tax exemptions can include any of the following:
- Land transfers between spouses
- Land transfers from a person to the family business
- Land transfers of farming property between family members
It’s important to speak with an accountant or tax specialist regarding whether or not your particular situation makes you eligible for a land transfer tax exemption.
Trying to figure out how to best spend your tax refund? Click here.
Land Transfer Taxes in Toronto
As if paying one land transfer tax wasn’t enough, those who purchase real estate in Toronto will have to pay a municipal land transfer tax on top of the provincial tax. First introduced back in 2007 and implemented in 2008, the municipal land transfer tax for real estate transactions in the Toronto has become increasingly relied on as part of the city’s budget.
Read this to learn about how owing taxes to the Canada Revenue Agency affects your credit score.
The municipal land transfer tax rate for Toronto is calculated based on the sale price of the property in question and whether or not the property is considered residential.
First-time homebuyers are also eligible for a tax rebate. For the municipal land transfer tax, the rebate is a flat $3,725.
Land transfer tax Ontario is just one of the many fees that are associated with buying property. Understanding what these fees are and how much they come to is important to help you budget accordingly. Be sure to speak with your mortgage broker or tax specialist to help you identify all the financial obligations that are associated with buying a home in Ontario.