When purchasing a home in Canada, land transfer taxes are a mandatory expense. These taxes are determined by a percentage of the home’s cost. Consequently, pricier homes incur higher land transfer taxes. The applicable percentage is determined by either the province or municipality, resulting in varying rates across locations. Certain provinces, such as Alberta and Saskatchewan, do not impose land transfer taxes. Conversely, in provinces like Ontario, certain towns and cities levy both provincial and municipal land transfer taxes. It is essential to consider these factors when budgeting for a home purchase in Canada.
How to Calculate Land Transfer Taxes
Land transfer taxes are normally calculated based on the purchase cost of the property, any outstanding mortgage balance, and any other debts taken as part of the transaction. This land transfer tax is also referred to as a property transfer tax or a deed transfer tax in Ontario, as it is in many other jurisdictions. It’s also known as the real property transfer tax by some people. The Land Transfer Tax Act, which was passed in 1990 and most recently revised in 2021, contains this tax. In contrast to land transfer taxes, other provinces usually merely levy a fee.
However, the purchase price cannot be used to calculate the land transfer tax. The tax may occasionally be computed using the fair market value rather than the purchase price. Here are several scenarios when it might be necessary:
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- Transfer of a lease with more than 50 years left on the term
- A corporation transferring land to a shareholder or shareholders
- Land transfers to a business. This holds true if the company also issues shares.
No matter the type of property—residential, commercial, or land—the land transfer tax is applicable. The likelihood that you will have to pay tax in Ontario for a land transfer if you are a buyer is very high.
Taxes in Ontario Currently
See how the taxes work in Ontario, which are typically based on the price of the house.
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- On the first $55,000, there is a 0.5% fee.
- Then, 1% is added to the sums between $55,000 and $250,000.
- From $250,000 to $400,000, there is a 1.5% fee.
- From $400,000 to $2,000,000, 2% is charged.
- Any amount exceeding $2,000,000 where there are one or more single-family homes is subject to a 2.5% fee.
However, you might be eligible for a refund of land transfer tax Ontario if you’re a first-time home buyer. Up to $4000 could be given back. In essence, you would receive a refund of the land transfer tax Ontario on a house you bought for about $360,000. If your land transfer fees Ontario were more than $4,000, you would receive up to $4,000 and then be required to make up the difference on the remaining amount.
Ontario First-Time Home Buyer Eligibility
In order to be eligible for the land transfer tax rebates and be eligible for first-time home buyers. There are some conditions that you must meet first.
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- Minimum 18 years of age is required.
- You must be a permanent resident or a citizen of Canada.
- You have nine months from the time you buy the house to move in.
- You must not currently own or have ever owned a home, and neither you nor your spouse may have done so during the time you were married.
- If the house is brand-new, it has to meet the requirements for a home warranty.
- You have 1.5 years from the date of purchase to submit your request for a refund.
There are two distinct ways that you might go about getting the refund. The first is to ask for a reimbursement right away as you register the land transfer documents. Taxes must be paid at this time as well. You must submit an application to the Minister of Finance if you did not request the land transfer tax Ontario when you filed the paperwork. You must submit a copy of the agreement of purchase and sale, a copy of the registered land transfer deed, evidence of residency, and a fully completed Ontario Land Transfer Tax Affidavit for First Time Purchasers of Eligible Homes in order to complete this transaction.
Transfer Taxes: If You Don’t Live in Ontario
There may be a 25% speculation tax for non-residents in Ontario, depending on where you are buying. This was done to discourage foreign purchasers and encourage more locals to buy property. The Greater Golden Horseshoe Region, also known as the GGH, is subject to this tax. The entire greater Toronto area is included in the GGH.
Are There Different Land Transfer Taxes In Different Parts Of Ontario?
In contrast to some other provinces, Ontario has specific areas where you must additionally pay municipal land transfer taxes. The land transfer cost Ontario will also depend on the cost of dwellings in particular areas. Having said that, Ontario is the only municipality in Ontario that levies a separate land transfer tax. other places, such as Ottawa, Brampton, and Vaughan. London or even Richmond Hill can just use the provincial land transfer tax.
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Toronto
Both the municipal and the Ontario land transfer tax rates are used when transferring land in Toronto. The rates of the Toronto land transfer tax are:
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- On the first $55,000, there is a 0.5% fee.
- Then, 1% is added to the sums between $55,000 and $250,000.
- From $250,000 to $400,000, there is a 1.5% fee.
- From $400,000 to $2,000,000, 2% is charged.
- Anything over $2,000,000 is subject to a 2.5% fee.
You can receive the land transfer tax rebates if you’re a first-time home buyer, much like with Ontario’s land transfer taxes. Only first-time home buyers are covered by this, and unlike Ontario’s land transfer taxes, you can receive a return of up to $4,475. The Ontario rebate is limited to $4000.
Taxes on Land Transfers Calculated
There are several things to take into account when calculating land transfer taxes, despite the fact that it may appear rather simple. Do you have any recent purchases? Is the property you plan to buy in Toronto or somewhere else in Ontario? Are you now a resident of Ontario, or do you intend to move there? Each of these circumstances will have an impact on how much land transfer tax you must pay. This is easier to understand when buying a property that has already been built, but what happens when you plan to build on it? In this instance, the cost of the land (lot) and the cost of the construction contract are used to determine the land transfer tax.
When foreign currency is involved, the situation is also not always clear-cut. The land transfer tax must be converted because all taxes are calculated in Canadian dollars, which must be converted first. The date on which the purchase or sale becomes a legally binding agreement—or, in the absence of a contract, the date of registration—is used to determine the currency conversion.
How to Determine the Land Transfer Tax in Ontario
Let’s look at some of the land transfer tax charges depending on various situations now that we have covered the fundamentals of Ontario’s land transfer taxes.
Let’s say you spent $30,000 on a house that wasn’t in Toronto and had a $300,000 market value. You’d pay 0.5% on the first $55,000 of income. 1.5% would be applied to the remaining sum, up to a maximum of $250,000.
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- $55,000 x 0.005 = $275
- $195,000 x.01 = $1,950
- $50,000 x.015 = $750
- $275 + $1,950 + $750 = $2,975
As a result, $2,975 in land transfer tax would be due for this transaction.
Let’s examine buying a home in Toronto using the same criteria. We already know that buying a home in Toronto will incur both municipal and provincial taxes. Municipal taxes like this are equivalent to provincial levies. Thus, multiplying the taxes by two is essentially what you would do. Outside of Toronto, taxes on a $300,000 home would therefore be $2,975, but in Toronto, the total land transfer tax due would be $5,950.
What about buying a home without being a Canadian resident? So the amount of the land transfer tax would change once more. If you are purchasing outside of Toronto, you would still pay $2,975 or $5,950, but if you are in the GGH area, you would also be required to pay the 25% speculation tax. In addition to the purchase price and the land transfer taxes, this would cost $75,000. You can use a land transfer tax calculator to get the most precise answers if you’re searching for a more detailed breakdown of the costs associated with land transfer taxes.
Additional Taxes in Ontario
There are other taxes besides the non-resident speculation tax and the land transfer tax, which we have already covered. Municipal property transfer tax Ontario would be among the most noticeable of these levies. The municipal government chooses this tax amount, which is also based on the value of your property. The remaining annual property taxes that the previous owner paid must be paid to them by you, the new owner, when you are in the process of buying a home. This sum is covered by your closing costs and is typically verified by a real estate attorney. After the deal is sealed, you will still have to pay property taxes on a regular basis. If your municipality does not handle property taxes, you can either do this through your local government or through the provincial land tax programme, which is run by the Provincial Land Tax Office in Thunder Bay.
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HST
You are exempt from HST when it comes to the land transfer tax itself. In Ontario, HST is only charged on newly built homes. Any residences that are up for resale do not require payment. The provincial part of the HST may be eligible for a rebate of up to $24,000 if you must pay the HST on new construction.
Methods for Paying Ontario Land Transfer Taxes
When registration is complete through the land registry office in Ontario, the land transfer tax is due. There are several procedures that must be followed if it is not registered within a month of the closing date. Within 30 days of making the purchase, the buyer must provide a Return on the Acquisition of a Beneficial Interest in Land form and payment. Land transfer tax can be paid to the finance minister.
In Ontario, the majority of buyers will be required to pay a land transfer tax, although there are a few minor exceptions. These exemptions from land transfer tax include:
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- Transfers between partners (not all circumstances are eligible)
- Transfers between a person’s business and them (in specific circumstances only)
- Farmland transfers within families (certain circumstances do not qualify)
transfers of life leases from charities or non-profits (under specific circumstances only) Land transfer taxes are mandatory, notwithstanding this and the first-time homebuyer credit. It’s vital to keep in mind that only the buyer, not the seller, is responsible for paying land transfer taxes, which are applicable to all real estate transactions.
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Frequently Asked Questions (FAQs)
You can avoid paying land transfer tax in Ontario simply by transferring the farming land among family members, by transferring the land or property with your spouse, or by buying a newly-built house.
Ontario has improved its NRST (non-resident speculation tax) that applies to specific foreign purchasers of Ontario homes. The province has improved its NRST up to 25% from 20% of the purchase cost for the transferred property, as effective from October 25, 2022
The NRST implies the purchase or possession of an interest in residential property situated at any place in Ontario by individuals who are expats (individuals who are not citizens of Canada) or by foreign companies or taxable trustees.
Even if HST is not eligible to be payable on the purchase price of your home, HST is payable on most transaction costs, such as disbursements and legal fees, real estate commissions, home inspections, appraisals, and other fees. HST is not payable on land transfer tax or mortgage insurance fees. How can I avoid land transfer tax in Ontario?
How can you define a foreign buyer tax in Ontario?
How can you define non-resident tax in Ontario?
Is an individual required to pay land transfer tax and HST tax in Ontario?
