Land Transfer Taxes: What Buyers Should Know

Land Transfer Taxes: 

What Buyers Should Know

Buying a home is definitely a huge purchase, and is probably the biggest expenditure you'll ever make in your life. But there are plenty of other costs associated with buying a home beside the actual price tag of the property, and land transfer taxes are one of them.

What Are Land Transfer Taxes?

If you buy a home in Ontario, you'll be required to pay land transfer taxes as part of your overall closing costs. Land transfer taxes are charged when interest in a real estate property or land transfers hands from one owner to another and is paid when the deal closes. 

Who Pays Land Transfer Taxes?

In Ontario, buyers are responsible for paying land transfer taxes. Sellers are never billed for this expense. Real estate lawyers will arrange to have these taxes paid when the title is transferred to the new owner (the buyer) on the closing day. 

What About Toronto Land Transfer Taxes?

Not only do Torontonians have to pay the provincial land transfer tax, they're also responsible for paying another municipal land transfer tax, which basically doubles the amount of money that they will have to pay in the city. 

How Are Land Transfer Taxes Calculated?

Land transfer taxes are typically based on the amount paid for the property, but this tax is not just an average tax of the value of a property. The provincial and municipal land transfer tax calculations are similar, except for the rebates that first-time homebuyers are able to take advantage of after paying these taxes:

Ontario land transfer tax calculations:

Property value up to and including $55,000 - 0.5%

Property value exceeding $55,000 up to and including $250,000 - 1%

Property value of exceeding 250,000 to $400,000 - 1.5%

Property value between $400,000 and $2 million - 2% 

Property value exceeding $2 million (with one or two homes on the land) - 2.5% 

Toronto Land Transfer Tax:

Property value up to and including the first $55,000 - 0.5% 

Property value exceeding $55,000 up to and including $250,000 - 1% 

Property value between $250,000 and $400,000 - 1.5% 

Property value between $400,000 and $2,000,000 - 2%

Property value over $2,000,000 - 2.5% 

To illustrate, let's say you are purchasing home for $500,000 that is located within the boundaries of the city of Toronto. The provincial and municipal land transfer tax calculations would amount to $6,475 each which means you would have to pay $12,950 in total for land transfer taxes. 

These rates apply to all homes purchased within the boundaries of Toronto and apply to detached homes, semi-detached homes, townhomes, or condominiums.

Land Transfer Tax Rebates For First-Time Homebuyers

For first-time homebuyers, there are rebates available to help lessen the financial burden of buying a home. In order to be approved for a land transfer tax rebate, buyers must meet certain requirements, including the following:

  • Be at least 18 years of age

  • Be a Canadian citizen or permanent resident in Canada

  • Occupy the home within 9 months of the closing date

  • Have not owned a home anywhere else in the world

  • Apply for the rebate within 18 months of purchasing a home 

As far as provincial land transfer tax rebates are concerned, first-timers can take advantage of a full rebate up to $368,334, and $4,000 rebates on amounts exceeding $368,334. For the municipal land transfer tax, first-time homebuyers can get a full rebate up to $400,000, after which they can get a rebate of $4,475 for amounts exceeding $400,000.

If buyers are married, one spouse may not have owned property anywhere while being married to each other. Further, if the home purchased is a new build, it must qualify for a home warranty.

To claim this rebate, an application form will have to be completed and submitted, after which a refund can be given once the land transfer tax is registered and the taxes are paid. If this rebate is not claimed when the land is registered for land transfer tax, the entire tax amount will have to be paid and a rebate claim will need to be made within 18 months.

Are There Exemptions to Land Transfer Taxes?

Tax exemptions exclude homebuyers from paying land transfer taxes in Ontario. There are specific scenarios that can allow buyers to be exempt from paying Ontario land transfers when buying a home, including land transfers:

  • Between spouses

  • From an individual to the family business

  • Farming properties between family members

What About Taxes For Non-Residents?

As of April 21, 2017, non-permanent or non-resident buyers in Canada are responsible for paying A 15% tax on properties purchased in the Golden Horseshoe. This is referred to as the "Non-Resident Speculation Tax" and is applicable to foreign buyers, which means they will have to pay this 15% tax on top of the associated provincial and municipal land transfer tax fees. 

This can make for a very heavy expense when buying property in the GTA, which is why sales dipped temporarily when this new tax rule came out last year.  

Final Thoughts

Land transfer taxes are certainly not fun, but they're all part and parcel of buying a home in Toronto. That said, it's important to understand what these fees are all about and how much they are to help you come up with a workable budget when buying a home. As always, be sure to consult with your real estate team to help you navigate the waters of land transfer taxes.