The New Changes to Land Transfer Tax in Ontario

land transfer tax

land transfer tax
Buying a new home, for many people, will be the biggest if not one of the biggest investments any purchaser will make in their lifetime.  For purchasers, both new and old, Land Transfer Tax is often overlooked as a consideration.  Purchasers are more worried about finding a home in their desired location or how they are going to finance their purchase.  As the single biggest disbursement in a purchase transaction, the Land Transfer Tax is worthy of additional consideration, and new changes are coming our way.

Provincial Land Transfer Tax

In the Province of Ontario, purchasers of land or an interest in Iand (“Property”), must pay Land Transfer Tax (LTT) at the time the real estate transaction closes. The amount of LTT payable depends on the amount paid for the Property (the “Consideration”), calculated based on a percentage of the Consideration on the following sliding scale[1]:

0.5%    up to and including $55,000

1%       above $55,000 up to and including $250,000

1.5%    above $250,000 up to and including $400,000

2%       above $400,000 where the land contains one or two single-family residences.

 

For other types of properties, that is, land NOT containing one or two single-family residences, a similar sliding scale applies:

0.5%    up to and including $55,000

1%       above $55,000 up to and including $250,000

1.5%    above $250,000

The land transfer tax rate is the same for residents and non-residents of Canada.

 

Municipal Land Transfer Tax

If the Property is located in the City of Toronto, purchasers are subject to an additional municipal LTT.  The City of Toronto is the only municipality out of the 444 Ontario municipalities[2] that has the special power to collect its own municipal LTT.  The calculation of the municipal LTT is similar to that of the provincial LTT and is also based on a percentage of the Consideration on a sliding scale. For a Property containing at least one, and not more than two, single-family residences, the municipal LTT is calculated as follows[3]:

0.5%    up to and including $55,000

1%       $55,000.01 to $400,000.00

1.5%    over $400,000.00

 

Example Calculation

According to the latest market watch report from the Toronto Real Estate Board (TREB) [4], the average MLS listing price of all homes in the City of Toronto is $770,480.  Based on the average price, the total LTT payable on this transaction before any applicable refunds for a First-Time Homebuyer would be $23,019.20 (provincial LTT $11,884.60 + municipal LTT $11,134.60).

If the purchaser qualifies as a First-time Homebuyer in Ontario, the purchaser maybe be eligible for a LTT refund of up to a maximum of $5,725.00, effectively reducing the total LTT amount to $17,294.20. Find out more about First-time Homebuyers in Ontario.

New Changes to the Provincial Land Transfer Tax

Beginning on January 1, 2017, a new LTT bracket will be created for both one and two single-family residences as well as other types of properties. Currently, the LTT rate for any Consideration above $400,000.00 is calculated at 2 percent for one and two single-family residences.  Come 2017, the 2% will only apply to Consideration amounts above $400,000.00 up to and including 2 million dollars.  For one or two single-family residences, LTT in the new year will now be calculated at a rate of 2.5% on any Consideration amount above 2 million dollars. For all other properties, LTT will be calculated at the rate of 2% on any Consideration amount above $400,000.00.  It remains to be seen whether the City of Toronto will follow suit and also change its LTT calculation. Only time will tell.

As alluded to above, LTT is payable by the purchaser when the transaction closes. New purchasers not only need to be aware of LTT; they need to prepare for it and ensure they have sufficient savings or financing to pay for it when the transaction is completed.

Discuss LTT with your real estate lawyer who can explain the ins and outs of your purchase transaction.

 

Resources

[1] Ontario Ministry Of Finance

[2] Ontario Ministry Of Municipal Affairs & Housing

[3] The City Of Toronto

[4] Market Watch

Michael Taing

Michael is a Lawyer in the Corporate/Commercial and Real Estate practices at Hummingbird Lawyers LLP.

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