What Ontarians Need to Know about the Land Transfer Tax

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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.

What is the Ontario Land Transfer Tax?

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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.

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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.

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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.

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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.

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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.

Other Frequently Asked Questions

Is the Land Transfer Tax the same as Sales Tax?

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.

Can the land transfer tax be added to a mortgage?

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.

How much will I pay in Land Transfer Taxes?

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.

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