Homebuyers in Toronto and throughout the GTA know that purchasing a new home can be a long and somewhat complicated process. There can also be a raft of unexpected fees, which can surprise buyers throughout the process. Of course, nobody wants to make their path to a new home more complex than it has to be. That’s why new and old buyers must begin their search with an understanding of what they’ll encounter during their purchase. On that note, we will explore one of the most misunderstood aspects of buying a home in Ontario: the Land Transfer Tax. Here is everything you need to know to prepare and budget for land transfer tax fees.
What is the Ontario Land Transfer Tax?
According to the land transfer tax in Ontario (sometimes referred to as the property transfer tax), anytime a buyer acquires land, they must pay a tax to the provincial government. “Land”, as a term, is broadly defined. According to the Ontario Government website, it includes “lands, buildings, structures, structures to be constructed, fixtures and any interest in these.”
The total cost of the tax itself is calculated according to the price of the land, meaning that more expensive homes will be taxed at a higher rate.
Who Pays Land Transfer Tax In Ontario?
The most important distinction to understand when exploring the land transfer tax is that it’s a cost the buyer of a property must pay…not the seller. This can sometimes come as unwelcome news to first-time buyers, who may not be familiar with the tax and not have planned it into their budgets. It’s also worth noting that in dense, popular municipalities like Toronto, buyers will also pay another, separate, municipal land transfer tax.
Luckily, in Ontario, first-time buyers are eligible to receive an Ontario land transfer tax rebate, up to $4,000. Buyers in Toronto are also likely able to receive a rebate for the municipal tax, up to a value of $4,475. In either case, in order to qualify for a rebate, the buyer will need to meet the following criteria: they must be a Canadian citizen or permanent resident, they must be 18 or older, they must plan to live in the home in the next 9 months, and they must not ever have previously owned a home. These rebates are almost never enough to cover the full cost of the taxes—but they do serve to blunt the blow to first-time purchasers.
When Do I Have to Pay the Land Transfer Tax?
The Ontario Land Transfer Tax (as well as any municipal taxes you may owe) is legally mandated to be charged when you take possession of a new property. Generally speaking, your real estate lawyer will look after the land transfer tax forms, and arrange for your payment to take place on the closing day.
Are There Are Any Exemptions From The Land Transfer Tax?
In Ontario, there are a few land transfer tax exemptions. For example, certain transfers of land between spouses or former spouses, and transfers from members of a family to a family business corporation (in some cases). There are also special cases for land transfers between affiliated businesses, and a few special laws around the land needed for oil & gas pipelines. If you’d like to learn more about the specifics of certain exemptions, a qualified real estate lawyer will be able to help.
What is Included in The Land Transfer Tax?
The purchase of any home, condo, or building falls under the land transfer tax. It also includes new builds as well as fixtures such as lighting, appliances, or cabinets. It is up to the buyer to pay the cost of this tax which is determined by the provincial government. In some communities, an additional land transfer tax may be added. In the Greater Golden Horseshoe Region, a 15% Non‑Resident Speculation Tax (NRST) may apply.
How is the Land Transfer Tax Calculated?
Several factors determine the value of the land transfer tax such as purchase price, liabilities, soft costs, and upgrades. The fair market value of the land is also taken into consideration to avoid fraud such as leases with terms that can exceed fifty years and certain transfers between corporations and shareholders.
The tax ranges from 0.5% to upwards of 2.5% and increases based on land value.
- amounts up to and including $55,000: 0.5%
- amounts exceeding $55,000, up to and including $250,000: 1.0%
- amounts exceeding $250,000, up to and including $400,000: 1.5%
- amounts exceeding $400,000: 2.0%
- amounts exceeding $2,000,000, where the land contains one or two single-family residences: 2.5%.
How Do I Get a Land Transfer Tax Rebate and How Is It Paid?
There are three ways to claim a land transfer tax rebate. First, all criteria (age, first-time homebuyer, Canadian citizen) must be met before a refund can be issued. Once these criteria have been approved, an application for a refund can proceed.
- Go to the Electronic Land Registration System and select the appropriate code that reflects your purchase.
- Homebuyers who chose to paper register and the land registry office can claim an immediate refund by filing For paper registrations, qualifying taxpayers or their solicitors may claim an immediate refund at the time of registration by filing the Ontario Land Tax Refund Affidavit for First-Time Purchasers of Eligible Homes Ontario Land Transfer Tax Refund Affidavit For First‑Time Purchasers of Eligible Homes along with their Transfer/Deed and Land Transfer Tax Affidavit.
- Claims can also be made to the Ministry of Finance when a claim can not be made a registration.
Claims can be paid by direct deposit by filling out the direct deposit request form.
Buying or selling a home can be one of the most exciting times in our lives. But there is more involved than just the purchase price. Many homeowners find themselves overwhelmed with stacks of paperwork and the discovery of hidden fees that come with taking on a new home such as the land transfer tax. This fee applies to home purchases and is determined based on the purchase price.
Some homebuyers can be caught off guard as it is not listed in the purchase price. Forcing buyers to scramble to cover the cost. No matter whether you are a first-time buyer or have purchased many homes, always take the time to budget for the land transfer tax and discuss any potential fees with your legal advisor to avoid being caught off guard at closing. This will ensure your home buying experience is a happy and positive one. Contact Seif Law Firm to help you with any land transfer tax questions you may have.
Other Frequently Asked Questions
No, land transfer taxes are not the same as sales taxes. Sales taxes are charged on new builds (be they condos or houses), whereas the land transfer tax applies to all land purchases, regardless of the age of the land or home.
No, neither the Ontario tax nor the Toronto tax can be amortized or rolled-over through the period of the mortgage. The full fee will be due when the deed changes hands—hence the importance of calculating your tax and planning for it.
The amount a buyer will owe depends on the value of their new home, as well as its location. In Toronto, where buyers must pay both the Ontario Land Transfer Tax and the Toronto Municipal Land Transfer tax, the total can be fairly substantial. For example, an averagely priced home in Toronto ($805,320) will cost the buyer roughly $25,000 in land transfer taxes total, making up more than 3% of the cost.
It is important to budget for land transfer tax costs in the overall purchase price. Keep in mind the cost of up to 2.5% over the purchase price of the home.
HST only applies to newly constructed homes or those that have undergone significant renovation. It does not apply to resale homes and buyers can receive a rebate of up to $24,000 of the provincial portion of HST.
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