What is it?
Although not directly tied to mortgages, the Land transfer tax is an important cost and consideration for all home buyers when purchasing a property. In Ontario, when you purchase (or acquire) land or any form of real estate, you pay what’s known as a “land transfer tax” to the province. This tax is payable upon the closing of your home and is a part of your “disbursements” which the lawyer would collect and remit on your behalf.
How much is the tax?
The amount of the tax is based on the agreed price you have paid from the real estate and is always paid by the “buyer” in the transaction. Like most taxes, the amount payable is based on the amount of the purchase price (or acquiring cost). Below are the following tax brackets depending on the applicable value consideration of the purchase:
1st Bracket: amounts up to and including $55,000: 0.5%
2nd Bracket: amounts exceeding $55,000, up to and including $250,000: 1.0%
3rd Bracket: amounts exceeding $250,000, up to and including $400,000: 1.5%
4th Bracket: amounts exceeding $400,000: 2.0%
5th Bracket: amounts exceeding $2,000,000, where the land contains one or two single-family residences: 2.5%.
If you are buying a home with a purchase price of $400k, you would need to pay a total of $4475.00 in land transfer taxes to the province. This is calculated based on the first three applicable brackets indicated above:
$275 for the first 55k + $1950 for the next 195k + $2250 for the remaining 150k = $4475.00 for the total purchase price of 400k.
Having said that, you won’t need to do the manual calculation because, like most things, there are several online calculators you can use to quickly get to the appropriate tax amount you would need to consider.
What about First Time Home buyers?
If you are a first-time home buyer, you’re in luck. In Ontario, the government will provide an instant land transfer tax rebate of up to $4000.00 to help offset any land transfer taxes that you would otherwise need to pay. In the above example, the $4475 land transfer tax on a purchase price of 400k would be reduced to $475.00 after the rebate. This can be extremely helpful for first-time home buyers because it reduced the amount of money you would need to set aside for your closing costs.
Are there any other considerations?
Although not very common in all municipalities, there can be some that levy their land transfer taxes. This additional land transfer tax would be on top of the provincial land transfer taxes. For example, the city of Toronto is one city that does this. In the same example of purchasing a home for 400k, the total land transfer taxes that would need to be paid across the board would be $8475.00 which is an additional $4000.00 to the provincial portion of $4475.00.
For more information on land transfer taxes, feel free to visit the official provincial site for additional insights: https://www.ontario.ca/document/land-transfer-tax . Alternatively, you can give us a shout and we’d be happy to go over any questions you may have – at (905) 455-5005