Owning a lovely condo in the beautiful city of Toronto is something that everybody dreams of. Looking for condos for sale in Toronto is undoubtedly a burdensome task, but managing all the property-related taxes is even more taxing. Luxury condos are quite valuable when it comes to owning such a property in Toronto. People pick a condo in Toronto over an independent property for a variety of reasons, including cost and lifestyle. They come with a range of facilities and are known for providing homeowners with a comfortable abode.
Condo real estate tax is something you must consider if you’re thinking of buying a condo in Toronto. Knowing property taxes, how they're calculated, and the myths around them can help you understand how these taxes function and how to get the most out of them while looking for Toronto condos for sale.
Understanding the Condo Property Tax
When buying a condo, you should pay attention to more than detailing out the sales contract. You must also closely examine the tax bill of the property as well. Suppose you've lived in a rented property just before looking for condos for sale in Toronto. In that case, you never knew what information goes in the property tax. Similar to other taxes, the local government uses the property tax you pay to provide the services and meet the public requirements of the community. This includes public space preservation, fire protection, sanitation and garbage collection.
The tax rates differ depending upon the location and exact place of development of the condo. The assessment of the property will show the amount of taxes you may have to pay on the condo property. While the term “property taxes” seem daunting, it is very important to know the information that goes into it while buying real estate in Toronto. You have the option of requesting and reading property tax documents based on your needs.
Variations & Calculation of Property Tax
Property taxes assist local municipalities in obtaining cash from property owners in order to offer community maintenance services. Each municipality establishes its tax rate. The property tax rates will vary depending on the community's demands and the cost of delivering services to meet those demands. They are also affected by the size of the municipality and the living conditions. There are mainly two parts of a property tax:
- Municipal tax, depending upon the condo property’s municipality. The municipal council sets the municipal tax rate every year.
- Education tax
Property tax on a condo is calculated based on the condo’s total value. Property taxes will decrease as the condo unit’s prices rise. Simply multiply the assessed value of a property by the tax rate to compute property tax.
Locations with lower property prices may have a higher tax rate. This is because lower property values imply that the area is in the development phase. Since development necessitates more funds, the tax rate and amount may be higher in such areas.
The rate of property taxation varies based on land use. This could be due to a variety of variables, including residential use. Property taxes are determined by the provinces and cities in which they are located. There can be a lot of variations in property tax rates from one region to the next. If you're trying to decide on a condo, keep in mind the province and territory you want to go with.
Condos and lofts for sale in Toronto have always been in a surge. Before making a final decision and signing the final contracts, it is always advisable to keep an eye on the latest tax rates and related updates to avoid an unwanted expense in the later stages.
Various deciding fundamental estate-related factors make up the property tax bill. Knowing what they are will help you get a clear picture of the property tax structure. Some of them, in general, are as under:
1. Condo’s age
2. Location of the development
3. Dimensions of the property
4. Large alterations, renovations, or additions
5. Construction quality
Other Taxes
Purchasing a condo does not end with the property contract and price. You have to factor in some additional taxes associated with a condo. Land transfer tax is one of them. Aside from the condo property tax, you'll also have to pay a land transfer tax on top of your condo purchase.
The land transfer tax must be paid within a certain time frame (determined by the municipality) once the payment transaction for the property is complete. A to-be-homeowner of a condo in Toronto will also be required to pay other development taxes, which may vary from municipality to municipality. Knowing all of the tax-related information beforehand will help you in better financial planning. You get to know the overall budget (condo value plus property tax) you need to have to attain the ownership of a condo.
Myths and Facts Related to Property Tax
1. “Because I lived in the condo, any profit from its sale must be tax-free.”
It is not enough to just live in a property to qualify for the "primary home exemption.” Even if you lived in the condo, the principal home exemption would not be applicable if it was not your capital property. Regardless of whether you lived in the property or not, if you bought it with the sole aim of reselling it for a profit, the profit is taxable as business income. If, on the other hand, you bought the condo to live in it for a long time, the dwelling is your capital property, and a principal residence exemption may be available in all of the other exemption's standards are fulfilled.
2. “I sold my condo that was on an assignment. Why should I pay any kind of tax? The condo is yet to be constructed.”
An assignment of a purchase and sale agreement for a property that is still under construction by the original purchaser to a new purchaser before closing is referred to as "selling on an assignment" in the real estate industry.
As an assignor, you're selling a highly valuable asset. Any income you earn from it is subject to income tax, and in some situations, it may also be liable to the harmonized sales tax (HST).
Your intentions at the time of signing the purchase and sale agreement determine the tax treatment. The gain from an assignment is considered as business income if you aimed to resell the condo for a quick profit. The gain from an assignment would refer to as a capital gain if you intended to buy for a long-term investment.
3. “I have only one real estate property throughout this time. So, any profit from its sale must be tax-free. If I only had one property, where does the Canada Revenue Agency assume I lived?”
Having just one property does not imply that it would be your primary residence or your major asset. You do not have to live in a property to qualify for the principal residence exemption.
4. Owning a property for more than a year instantly makes it a capital asset, and the property owner just has to pay tax on the capital gain.
There is no clear-cut provision in the law that guarantees a specific tax treatment based on how long a person owns a property. A long holding term usually suggests that a property is a capital asset, whereas a short duration usually implies a business transaction. Every rule, however, has an exception.
5. There is no requirement for the condo owner to report the sale of their primary residence condo on their tax return bill as there is no tax to pay.
That is not at all true. Individuals selling their primary condo residence unit will have to report the sale and submit necessary designation and forms depending upon the year of sale. Suppose you neglect to designate your principal residence in the year of the sale. In that case, you must contact the Canada Revenue Agency (CRA) to request an amendment to your income tax and benefit return for that year. In some cases, the CRA will accept a late designation, but there may be a penalty.
Takeaway
Condos are becoming increasingly popular among both investors and buyers. Even pensioners are taking advantage of condo communities' excellent gathering opportunities. Furthermore, the amenities offered by condominium projects are unrivalled. If you're looking for a new home, a condo has a lot of advantages.
The recent trends suggest that condo prices are rising at a slower rate than single-family homes. As a result, they are a more economical option for property buyers. Even though the market price is growing, you can still take advantage of condos' lower prices. This also includes a lower property tax.
Property taxes can account for a large amount of the total cost of acquiring the ownership of a condo. As a result, knowing about the property taxes and their associated misconceptions aids in gauging the neighbourhood and determining the suitable property tax rate. This can help you figure out whether purchasing a new condo in a specific community is worth your effort and money. However, if you do not have much information, you can contact the Toronto Condo Team
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