Most people have heard of the Land Transfer Tax. But how many understand what it is and how it works? Any purchase or transfer of a Canadian property triggers a payment of provincial — and potentially Municipal — Land Transfer Tax (LTT). The basis of this tax calculation depends on the property’s purchase price. It is payable by your legal representative before the transfer of title.
What is Land Transfer Tax?
When you buy a home, you’ll incur many costs outside of the actual mortgage. Otherwise known as closing costs, you’ll typically have to cover legal fees and moving expenses, and of course, in some provinces, a home buyer will pay the LTT when they purchase the property. These taxes are paid directly to the jurisdiction where the property resides, and the calculation depends on the final price you pay for the home.
Home buyers in Toronto pay additional municipal LTTs equivalent to the provincial transfer tax. However, 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.
How Much Does the Tax Cost?
As we went over, the taxes you pay depend on the purchase price of your home. But here are some estimates and whether you are eligible for a rebate.
The tax covers various things, and they usually base it on the land cost, remaining mortgage, upgrade costs and beyond. The more expensive your home, the higher your tax costs will be.
According to the Ontario government, they base the cost on the fair market value, in three examples: “the transfer of a lease with a remaining term that can exceed 50 years, the transfer of land from a corporation to one of its shareholders, or the transfer of land to a corporation, if shares of the corporation are issued.”
First-Time Buyer Tax Rebate
In all provinces except Alberta and Saskatchewan, property buyers must pay a Land Transfer Tax or LTT. (The two prairie provinces charge a much smaller transfer fee, instead). However, to offset the cost of land transfer taxes, the provinces of Ontario, British Columbia, Prince Edward Island, and the City of Toronto offer land transfer tax rebates for first-time homebuyers.
In Ontario, you must apply within 18 months of the transfer date to get this rebate. The maximum provincial refund is $4,000 and covers the total amount to a full purchase price of $368,333. Therefore, if your home is over the maximum purchase price, you still receive the maximum rebate but will pay taxes above that amount.
In Toronto, the maximum rebate is $4,475. It covers the total amount of a property price of up to $400,000. You receive the refund on homes with a value over this price, but again, you will need to pay the remainder of the land transfer tax above that amount.
Important to note that they must be Canadian citizens or permanent residents. They are also required to be at least 18 years of age. Most importantly, they must use the property as their principal residence. Your real estate lawyer can help you complete all the paperwork to help you receive this rebate.
Who Qualifies as a First-Time Buyer?
The key here is that the purchaser is a first-time buyer. This doesn’t mean a first-time buyer in Canada. It means a first-time property purchaser, period. In other words, the buyer (or their spouse or common-law partner) has never bought or owned an interest in a residential property anywhere in the world. However, if your spouse has purchased property, you may be eligible for half of the rebate amount.
How Does the LTT Rebate Help First-Time Buyers?
The LTT rebate isn’t substantial when you compare the amount to what you pay in taxes. For example, if a first-time homebuyer bought a home for $850,000 in the City of Toronto, the LTT would set them back $18,475. Half of this goes to the provincial LTT, and the other half to the municipal LTT. But, their rebate would put $8,475 back in their pocket. So this sum could quickly pay the buyer’s legal fees and at least a year’s property taxes. Therefore, it would be best if you always took advantage of rebates, as it can save you a lot of money.
There are also many other first-time buyer rebates and tax breaks, such as the first-time homebuyer incentive (FTHBI), first-time homebuyer credit, and the GST/HST New Housing Rebate. But, if you can bundle them together, you’ll find more savings.
TL;DR
Land Transfer Tax is something that you’ll have to incur as a home buyer if you live in the provinces that require this payment. Unfortunately, it’s an expense you’ll have to justify when you crunch the numbers and determine whether you have enough money to cover the down payment and closing costs. Remember, though, the rebate does exist for first-time buyers and can help cut costs.
