Toronto Land Transfer Tax Guide - TCT

Purchasers must pay a one-time land transfer tax when buying real estate in Canada. Land transfer tax deductions and refunds are available in specific instances. Let's learn more about land transfer tax.

About Land Transfer Tax

Depending on where you live, the province or the municipality collects land transfer tax money. There is a land transfer tax in every region. However, it may go by various names. Land transfer taxes are not uniform across Canada but vary by location. Some municipalities impose significantly higher transfer fees than others. Nevertheless, you may be entitled to a partial (or whole) tax refund if you are a first-time homeowner. To be eligible for the First-Time Home Buyers Rebate, you must satisfy specific requirements.

Why Do You Need To Pay Land Transfer Tax?

Starting in the 1970s, Canadian provinces adopted the practice. So municipalities that were unable to collect sales and income taxes employed the land transfer tax to fund their budgets. Yet, the land transfer tax must be implemented more consistently throughout municipalities, with major urban regions levying excessively high costs.

When purchasing "Land" in Ontario, the provincial government receives a payment. This phrase encompasses vast expanses of land, residences, commercial buildings, and massive constructions. Further, the buyer often bears the land transfer tax if a transaction qualifies as real estate.

How Does The Land Transfer Tax Work?

Buyers of homes and businesses must know that the land transfer tax is still a one-time cost. Property owners generally pay the local government whenever they take ownership of the land, structure, condominium, or other real estate forms, in contrast to additional yearly fees and taxes.

The price purchasers pay is generally determined by the property's overall cost or market value and the appropriate percentage. Moreover, regional variations in percentages cause the land transfer tax to fluctuate depending on government funding demand.

How Much Does Land Transfer Tax Cost?

The Land Transfer Tax rate differs across provinces. Typically, it is determined by the selling price of the property and land. In rare instances, it may be determined by the land's fair market value. As a general guideline, you should allocate 1% to 1.5% of the property value for Land Transfer Tax.

Note that you're unable to add this amount to your mortgage. Further, you must pay the entire amount immediately after the transaction. The government instead anticipates an immediate lump-sum payment. Most provincial and municipal websites have a Land Transfer Tax calculator. So enter the purchase cost of your property on the relevant page to get the precise amount you must pay. High-end and midrange real estate often incur greater percentages and overall costs.

Who Is Eligible For Land Transfer Tax Refund?

If you are a first-time home buyer and you meet the following criteria, you may be entitled to a refund of all or portion of the provincial land transfer taxes that are due:

• you must be a Canadian citizen or permanent resident
• be at least 18 years old
• move into the house within nine months of buying it
• have never owned a home previously
• and if you're married, your spouse must not have purchased a home while being your spouse

As of January 1, 2017, first-time homeowners in Ontario may qualify for a rebate equivalent to the entire amount of their land transfer tax, up to a limit of $4,000:

• The refund will cover the whole tax up to a maximum of $368,333 home purchase.
• For properties with purchase values above $368,333, you will be eligible for the maximum refund, although you will owe their land transfer tax balance.
• If you purchase a home with your spouse, yet only one of you is eligible for this rebate, you may still earn 50% of the refund.

How to calculate land transfer tax?

Starting on January 1, 2017, the tax rates for land transfer tax will vary based on the date of the sale and purchase contract.

If a purchase and sale contract is executed following November 14, 2016, and registration or disposal happens on or after January 1, 2017, the following tax rates apply to the value of the consideration:

• sums between $5,000 and $55,000: 0.5%
• sums in excess of $55,000 up to $250,000: 1.0%
• sums in excess of $250,000 and up to $400,000: 1.5%
• sums over $400,000: 2.0%
• sums over $2,000,000 on a property with one or two single-family homes: 2.5%.

Each region or municipality determines its real estate transfer tax rate, and both government levels impose the tax in certain circumstances.

So to illustrate the calculation of land transfer taxes, let's examine the acquisition of a $500,000 home in Toronto and Vancouver.

Land Transfer Tax in Toronto

If you purchased a $500,000 home in Toronto, you would be required to pay a municipal land transfer tax apart from Ontario's provincial tax, effectively doubling the cost. Hence, you will pay a total of $12,950, comprising $6,475 for the provincial part and an extra $6,475 for the municipal share.

However, if you qualify as a first-time homeowner in Toronto, you could be eligible for a refund of up to $4,475, leaving you with an entire land transfer tax obligation of $8,475.

Land Transfer Tax in Vancouver

Although the provincial governments only tax Vancouver residences, British Columbia has greater marginal tax rates than Ontario.

For a $500,000 home in Vancouver, you will pay the following:

• 1% of the initial $200,000 the cost is equivalent to $2,000
• 2% on the subsequent $300,000 of the cost is $6,000

Overall Vancouver land transfer tax: $8,000

However, as a first-time homebuyer in British Columbia, you may have to pay a 100% refund of that $8,000, indicating you will pay no land transfer tax.

How to calculate land transfer tax in Ontario?

Ontario applies marginal tax rates depending on the price of a residence. Therefore, for a $500,000 home in Ottawa, you will pay the following:

• 0.50 percent of the first $55,000 of the price equals $275.
• 1% on the following $195,000 of the price equals $1,950.
• 1.5% of the following $150,000 added to the price gives $2,250.
• 2% of the remaining $100,000 of the purchase equals $2,000

Total property transfer tax in Ottawa: $6,475

However, if you are a first-time homebuyer in Ontario, you may have to pay a refund of up to $4,000, decreasing your total transfer tax cost to $2,475.

Can A Person Be Exempted From Paying Land Transfer Tax?

Sometimes, a homebuyer may not have to pay the Land Transfer Tax.

In Ontario, if you transfer the property to your spouse undergoing separation proceedings and meet any of the three requirements, you are exempt from paying Land Transfer Tax.

• A transfer mandated by a court order.
• Both parties have consented to the transfer in agreement.
• The land is provided without remuneration in return, except for an encumbrance (meaning your spouse cannot pay you for the property but may assume the mortgage).

Additionally, certain towns may exclude the buyer from paying the Property Transfer Tax if the lineal descendant receives the land, like a brother, father, mother, or sister. So this is the situation in the Canadian province of Quebec.

Some cities also provide rebates for condo purchases, for instance. It is prudent to contact the local administration in the area where you want to buy a home to see if you are eligible for a tax exemption.

For instance, Montreal has initiated a program to prevent families from relocating to the neighbourhoods. So in this, purchasers of residential property with at least one child below 18 or a child born or adopted within nine months of the acquisition can receive a complete refund of the Land Transfer Tax.

If you need help calculating land transfer tax in Toronto, our Land Transfer Tax Calculator can help.