Definition of Land Transfer Tax
The land transfer tax is paid by a property buyer when this person first acquires the land or property. Land transfer tax is charged by most Canadian provinces and a few select cities. It is paid directly to the jurisdiction where the property is located. The total sum owed is calculated based on the final price paid for the property. For most buyers, this tax is collected and paid on their behalf by their legal representative.
Why is this term important?
When you purchase or gain a beneficial interest in land or property that is registered in the provincial Land Titles Office, you are required to pay a tax on that property transfer. This tax applies to all newly purchased real property as well as any secondary property that is transferred to you. Still, not all property transfers are subject to the land transfer tax. For instance, transferring property between legal spouses, transfers to a personal business, transfers of farmland within a family and an inherited property that is subsequently used by the receiver as their principal residence are all exempt from having to pay the land transfer tax.
All provinces charge a land transfer tax; Alberta and Saskatchewan charge much smaller fees when compared to other jurisdictions.
In most provinces, the tax is calculated as a percentage of the property’s current value (usually using the sale price of the property).
Home buyers in Toronto must pay an additional municipal land transfer tax that is equivalent to the provincial transfer tax. Buyers in Ontario, British Columbia and Prince Edward Island (as well as first-time buyers in Toronto) are eligible for rebates on these transfer taxes if they qualify as first-time homebuyers.
Examples of term
Land transfer tax can be a significant closing cost for buyers.
For instance, if you decided to sell your condo and buy a $1 million home in Vancouver, you would have to pay $18,000 in provincial land transfer taxes. If you bought the same home in Toronto, you would have to pay both a provincial land transfer tax of $16,475 and a municipal land transfer tax of $16,475, for a total tax hit of $32,950.