As a Mississauga mortgage agent, working in the Toronto area, I have been asked by many clients about the new land transfer tax and how it applies to new home buyers and mortgages. As of November 14, 2016, the Government of Ontario announced a number of changes to the Land Transfer Tax rules. These changes are intended to modernize the process and to make housing more affordable for new home buyers. The changes involve increases in the land transfer tax rates on transfers of certain property, and information related first-time homebuyer’s refund for eligible first-time homebuyers. In Ontario, when you buy land or an interest in land, you pay land transfer tax. First-time homebuyers of an eligible home may be eligible for a refund of all or part of the tax.
First-time Homebuyer’s Refund
The Government proposed to doubling the maximum land transfer tax refund to $4,000, from the current amount of $2,000 in 2016. This increase will be effective on January 1, 2017. So, what this means, is that qualifying home purchasers will be given relief on the land transfer tax on the first $368,000 amount of their first home. First‑time purchasers of homes that are greater than the value of $368,000 would receive a maximum refund of $4,000.
In the governments view, greater than half of first-time homebuyers in Ontario will apparently not pay any land transfer tax. This refund is available to first time homebuyers who are:
- Canadian citizens
- permanent residents
- including homebuyers who become Canadian citizens or permanent residents within 18 months of buying a home.
To claim a refund,
- you must be at a minimum, 18 years of age,
- you cannot have owned a home or an interest in a home anywhere else globally
- your spouse cannot have owned a home or interest in a home, anywhere in the world while he or she was your spouse.
- Previous ownership in a home means you do not qualify for the land transfer tax first-time homebuyers refund.
You cannot re‑qualify as a first‑time homebuyer. This rule may be different from other federal programs for first‑time homebuyers (e.g., the Canada Revenue Agency Home Buyers’ Plan).
So, who pays land transfer tax?
When the individual acquires land or an interest in land, that individual pays land transfer tax to the province upon the closing of the transaction. Land transfer tax is generally based on the amount which was paid for the land, in addition to any amount remaining on any mortgage or debt assumed as part of the arrangement to purchase the land.
In some instances, land transfer tax is can be based on the fair market value of the land, such as in the following scenarios:
- In the case of the transfer of a lease with a remaining term that can exceed 50 years
- the transfer of land from a corporation to one of its shareholders, or the transfer of land to a corporation, if shares of the corporation are issued
There is an increase in the Land transfer rates as of January 2017
Effective January 1, 2017, the government will increase the land transfer tax on family homes (whether they be semi-detached or detached), inclusive of townhomes and condominiums. The increase will go from 2 percent to 2.5 percent on any portion of the purchase above the $2 million-dollar mark. Even though this seemingly affects only those who are living in more extravagant residences, it may very well apply to a significant amount of people in the Toronto area housing market, as the current real-estate prices are higher than most places in the province. With respect to commercial properties, the increase in the land transfer tax rate is going to 2 percent from the current 1.5 percent on transfers of commercial, multi-residential, agricultural and industrial properties. This change in particular will be heavy hitting and affect most Commercial property sales, as there will indeed be significant added costs to individuals purchasing the aforementioned.
As it stands, the city of Toronto has its own land transfer tax scheme, which works out to a payment as follows:
- 5% on the first $55,000 on the individual’s home purchase
- 1% on any amount between $55,000 to $250,000,
- 5% on anything from $250,000 to $400,000
- and 2% on any amount over $400,000
The effective changes increase the tax on any portion over $2 million to 2.5 per cent. And even though these changes to the land transfer tax apply at the provincial level, the municipality of Toronto has usually been in-sync with the provincial land transfer tax rates as of this date. This may eventually bring action from Canada’s largest city to amend its current land transfer tax rates to reflect the provincial changes made in 2017.
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