UNDERSTANDING LAND TRANSFER TAX – ONTARIO

If you have recently acquired property in Ontario, you likely face a land transfer tax from the province. In most cases, the amount of this tax is based on what you paid for the land, as well as the remaining balance of any debt or mortgage that you took out during the process of purchasing in the land. In some instances, the calculation of the land transfer tax comes from the property’s fair market value. For example, if you are involved in a land transfer from a corporation to a shareholder; in a lease transfer with more than 50 years left on the term; or the transfer of land to a corporation in exchange for the issuing of shares.

Can anyone avoid paying the land transfer tax?

One type of purchaser who may not have to be some (or even all) of the applicable land transfer taxes is a first-time home buyer. While not all provinces have this exemption, its purpose in Ontario is to motivate people to enter the real estate market as buyers rather than renters.

There are several criteria involved with receiving the land transfer tax exemption as a first-time home buyer. You have to be no younger than 18 years old, you have to live in the home as your primary residence no later than nine months after acquiring it, this has to be your first eligible home (or interest in this type of home) anywhere, and if you entered into the sale agreement before December 14, 2007, the home has to be new construction, and you must have qualified for the Tarion New Home Warranty. If you are married, your spouse must be purchasing his or her first eligible home (or interest in a home) as well. If you don’t apply for your refund within 18 months of the property transfer, though, you lose eligibility.

What other land taxes apply to property?

Local cities also charge a tax on any business or residential property that you might own. Provisions about these taxes vary from one city to the next, so if you have questions about how these laws apply to your own property, the best bet is to inquire with your municipal tax authority. If your property is in an area beyond municipal control but still inside Ontario, the Provincial Land Tax Office, located in Thunder Bay, taxes your property through a provincial land tax assessment.

What about the harmonized sales tax?

Harmonized sales tax, or HST, applies to homes that are either new construction or involve substantial renovations in Ontario. However, it does not apply to resale properties. If you are buying a new home, you can get as much as $24,000 of the provincial allotment of your HST. The Canada Revenue Agency (800-959-1953) can provide you with more information about how you might be able to qualify for an HST rebate.

What are the land transfer tax rates?

The tax rates depend on the value of the transaction and grow progressively with the value of the property. Here’s how the percentages work:

  • The first $55,000: 0.5%
  • The next $195,000 ($55,001 – $250,000): 1.0%
  • $250,001 – $400,000: 1.5%
  • $400,001 and up: 2.0%. This only kicks in if the land has one or two single family dwellings.

So here’s how the calculation works. Let’s say that you have purchased property with one single-family dwelling for $700,000, and you register the purchase in a timely manner, so the sale price serves as the market value.

So you would pay $275 ($55,000 x 0.005) + $1950 ($195,000 x 0.01) + $2250 ($150,000 x 0.015) + $6000 ($300,000 x 0.02), for a total of $10,475. That total is payable to the Ontario tax authority at the time when you register the transfer. You have to register the transfer within 30 days of going to closing, or else you have to fill out a Return on the Acquisition of a Beneficial Interest in Land form to the Ministry of Finance, as well as the tax payment within 30 days of closing. If you overpay your taxes, you have to ask for a refund request within four years of paying the tax (18 months after the transfer date in the case of first time homebuyers.

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