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How Land Transfer Taxes are Calculated
When it comes to land transfer taxes, it is typically based on the purchase price of the property as well as any amounts remaining on the mortgage and any other debts assumed as part of the purchase. In Ontario, like many other provinces, this land transfer tax is also known as a property transfer tax or the deed transfer tax. Some people also refer to it as the real property transfer tax. This tax is part of the Land Transfer Tax Act that was established in 1990 and last amended in 2021. Other provinces tend to just charge a fee which costs much less than land transfer taxes.
That being said, the land transfer tax calculated can’t be determined with the purchase price. Sometimes, instead of being calculated on the purchase price, the tax is calculated based on fair market value. Some situations that might require that are:
- Transfer of a lease 50 plus years remaining on the term
- Transfer of land from a corporation to a shareholder or shareholders
- Transfer of land to a corporation. This applies if shares of the corporation are also issued
The land transfer tax applies to any type of property whether it is residential property, commercial property or land. If you are a buyer, then chances are very high that you will have to pay tax in Ontario for a land transfer.
Current Taxes in Ontario
How the taxes work in Ontario, are based on the cost of the home.
- 0.5% is charged on the first $55,000
- 1% is then charged on the amounts from $55,000 to $250,000
- 1.5% is charged from $250,000 to $400,000
- 2% is charged from $400,000 to $2,000,000
- 2.5% is charged on anything over $2,000,000, where the land has one or two single family residences
If you are a first time home buyer, you could be eligible to get a rebate on these land transfer taxes though. You could get up to $4000 back. Basically, this is the land transfer taxes on a home purchased for around $360,000 would be refunded to you. If you paid more than $4000 in land transfer taxes, then you would receive up to $4000 then need to pay the difference on the rest.
Eligibility for First-time Home Buyers in Ontario
In order to qualify for the land transfer tax rebate and qualify as a first-time home buyer. There are a few conditions that you must meet first.
- You must be at least 18 years old
- You need to be a Canadian citizen or a permanent resident
- You must move into the home within 9 months of purchasing it
- You must not own or have owned a home anywhere in the world
- Your spouse can’t own or have owned a home in the time you have been together
- The home must qualify for a home warranty if it is new construction
- You must apply for the refund within a year and a half of the purchase
In order to receive the refund there are two different ways that you can go about it. The first is to claim an immediate refund when you are registering the land transfer papers. This is also when the taxes need to be paid.
If you do not claim the land transfer tax refund when filing the papers, then you need to apply with the Minister of Finance. In order to do this through, you will need to supply a copy of the agreement of the purchase of sale, a copy of the registered land transfer deed, proof of residence and a completed Ontario Land Transfer Tax Affidavit for First Time Purchasers of Eligible Homes. ‘
How Transfer Taxes Work if You Don’t Live in Ontario
Depending on where you are purchasing in Ontario, there is a 25% speculation tax for those who are non-residents. This was to help combat foreign buyers and allow more residents to purchase homes. This tax applies in the GGH, also known as the Greater Golden Horseshoe Region. The GGH includes the entire greater Toronto area.
Do Land Transfer Taxes in Ontario Vary Depending on Your Location?
Unlike some other provinces, there are places in Ontario that require you to pay municipal land transfer taxes on top of the provincial ones. The housing prices in certain places will also help to determine what your land transfer taxes will cost. That being said, the only municipality in Ontario that charges a separate land transfer tax is Ontario. Other places like Vaughan, Brampton, Ottawa. London or even Richmond Hill just use the provincial land transfer tax,
Toronto
In Toronto, the land transfer taxes applied are the Ontario land transfer tax rates as well as the municipal land transfer tax rates. The Toronto land transfer tax rates are:
- 0.5% is charged on the first $55,000
- 1% is then charged on the amounts from $55,000 to $250,000
- 1.5% is charged from $250,000 to $400,000
- 2% is charged from $400,000 to $2,000,000
- 2.5% is charged on anything over $2,000,000
Just like with Ontario land transfer taxes, you can get the land transfer tax rebates for being a first time home buyer. This only applies to first-time home buyers and, unlike Ontario’s land transfer taxes, you can get up to $4,475 back from the rebate. You can only get $4000 from the Ontario rebate.
Calculating Land Transfer Taxes
While it may seem pretty straightforward calculating land transfer taxes, there are a lot of factors to consider. Are you a first time buyer? Is the property you are purchasing in Toronto or in other parts of Ontario? Are you a resident or are going to be a resident of Ontario? All of these situations will affect the amount of land transfer tax that you are required to pay.
On an already constructed property this is more straightforward, but what happens if you are purchasing a property with the intention to build? Well, in this case the land transfer tax is then calculated based on the cost of the land (lot) as well as the cost of the construction contract.
Another situation that isn’t entirely straightforward is when foreign currency is involved. Since all taxes are dealt with in Canadian currency, it needs to be converted in order to calculate the land transfer tax. The currency conversion is based on the date purchase of sale becomes a binding contract or, if there is no agreement, the date of the registration.
How to Calculate Ontario’s Land Transfer Taxes
Now that we have gone over the basics of land transfer taxes in Ontario, let’s take a look at what some of the land transfer tax costs would look like based on different scenarios.
Say you have purchased a house, not in Toronto, and the value of the property and purchase price is $300,000. On the first $55,000 you would pay 0.5%. The next amount up to $250,000 would be 1% and the rest would be 1.5%.
$55,000 x 0.005 = $275
$195,000 x.01 = $1,950
$50,000 x.015 = $750
$275 + $1,950 + $750 = $2,975
This means that the total of the land transfer tax payable for this purchase would be $2,975.
Let’s look at the same parameters and look at purchasing a home in Toronto. We already know that there are municipal and provincial taxes if you are purchasing property in Toronto. These municipal taxes are the same as provincial taxes. So that means, you would essentially multiple the taxes by 2. So taxes on a $300,000 home would be $2,975 outside of Toronto, but in Toronto the total land transfer tax payable would be $5,950.
What about purchasing a property as a non-resident of Canada? Well the amount of land transfer tax would be different again. You would still pay the $2,975 or the $5,950 depending on if you are purchasing in Toronto or outside of it, but if you are in the GGH area, you then also need to pay the 25% speculation tax. This would be $75,000 on top of the purchase price and the land transfer taxes.
If you are looking for a more specific breakdown of the costs on land transfer taxes, you are able to use a land transfer tax calculator to help you determine the most accurate results.
Other Taxes in Ontario
We have already discussed the land transfer taxes and the non resident speculation tax, but there are other taxes as well. One of the most prominent of these taxes would be municipal property taxes. This tax amount is also determined by the value of your property and is decided upon by the municipal government.
When you are in the process of purchasing a home, the remainder of the yearly property taxes paid by the previous owner needs to be paid to them by you, the new owner. This amount is included in your closing costs and usually confirmed by a real estate lawyer.
Once the purchase is finalized, you will then need to continue paying property taxes yearly. This can either be done through your municipality, or if you don’t have a municipality that controls property taxes, you can pay your taxes through the provincial land tax program that is administered by the Provincial Land Tax Office in Thunder Bay.
HST
When it comes to the land transfer tax itself, you don’t have to pay HST. HST is only paid on new construction homes in Ontario. It is not required to be paid on any homes that are up for resales. That being said, if you are required to pay the HST on a new build, you may be able to get a rebate of up to $24,000 on the provincial portion of the HST.
How to Pay Land Transfer Taxes in Ontario
In Ontario, the land transfer tax must be paid when the registration has been completed through the land registry office. If it isn’t registered within a month of the closing date then there are some steps that need to be taken. The buyer needs to submit a Return on the Acquisition of a Beneficial Interest in Land form along with the payment within the 30 days. You can pay land transfer tax to the Minister of Finance.
While most buyers in Ontario will have to pay a land transfer tax, there are a few small exceptions. These land transfer tax exemptions are:
- Transfers between spouses (not all situations qualify)
- Transfers from a person to their business (certain situations only)
- Farmed land transfers between family members (not all situations qualify)
- Transfers of life-lease from a non-profit or charity (certain situations only)
Other than this and the first time home buyer rebate, land transfer taxes are not optional. They apply to all purchases of properties but it is important to remember that only the buyer pays land transfer taxes, not the seller.
How Can Spring Financial Help?
While we can’t help you with land transfer taxes unless you are looking for a personal loan, we can help you find a mortgage that works for you. Our process is simple. All you need to do is apply online and we will have a licensed agent contact you in order to get the process started. We can help you find the mortgage that works for you without disrupting your life. The whole process can be done either via phone call, email or even text. You can apply online to get started or give us a call at 1-888-781-8439.
