In the province of Ontario, a purchaser who buys land or has a beneficial interest in land is required to pay Ontario’s land transfer tax upon the transaction closing. The Land Transfer Tax Act R.S.O. 1990, c. L.6 (“the Act”) governs the tax payable to the Province upon the registration or beneficial disposition of an interest in land. The Act provides that every instrument should have attached to it an affidavit. This affidavit is a sworn document by the purchaser, which sets out the value of consideration. You can find a copy of this affidavit by clicking here.

 

The amount that a purchaser pays for Ontario land transfer tax depends on the total value of consideration paid for the land, which includes purchase price, liabilities assumed, benefits conferred, soft costs and the cost of upgrades. In certain circumstances, the land transfer tax is based on the fair market value of the land.

 

What is the rate of Land Transfer Tax in Ontario?

The tax rates on the value of the consideration are as follows:

  • 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%; and
  • Amounts exceeding $2,000,000, where the land contains one or two single family residences: 2.5%

Take the example of a house with purchase price of $400,000. The provincial land transfer tax is calculated as follows:

  • Multiply $55,000 by 0.5% (55,000 × 0.005) = $275
  • Multiply the amount exceeding $55,000 up to $250,000 by 1.0% (195,000 × 0.01) = $1,950
  • Multiply the amount exceeding $250,000 up to $400,000 by 1.5% (150,000 × 0.015) = $2,250.
  • The total land transfer tax payable = $4,475 ($275 + $1,950 + $2,250).

There are many online land transfer tax calculators. Use any one of those calculators (such as this) to calculate how much land transfer tax you will have to pay when you buy your house.

Toronto Land Transfer Tax:

In addition to paying Ontario land transfer tax, purchasers buying homes in Toronto must also pay the Municipal land transfer tax.

The Municipal land transfer tax rates for a property containing at least one, and not more than two, single family residence are as follows:

  • Up to and including $55,000: 0.5% plus;
  • From $55,000.01 to $400,000: 1.0% plus; and
  • Over $400,000: 2.0%

For properties with more than two single family residences, the amount of land transfer tax is calculated as follows:

  • Up to and including $55,000: 0.5% plus;
  • $55,000.01 to $400,000: 1.0% plus;
  • $400,000.01 to $40,000,000: 1.5% plus; and
  • Over $40,000,000: 1.0%

Example: A purchase of land in Toronto in which the value of consideration equals $500,000:

  • Multiply $55,000 by 0.5 (55,000 x 0.005)= $275
  • Multiply the amount from 455,000.01 to $400,000 by 1% (344,999.99 x 0.01) = $3,450
  • Multiply the amount from $400.000.01 to $500,000 by 2% (99,999.00 x 0.02) = $2,000
  • The total municipal land transfer tax payable = $5,725

 

Exemptions and/or Exceptions

There are numerous exemptions and/or exceptions to the payment of land transfer tax. A lawyer will help determine whether one of those applies to your circumstance:

  • Leases;
  • amalgamations;
  • transfers between spouses;
  • family corporations;
  • employee to employer dispositions;
  • land as capital;
  • a first-time home-buyer;
  • natural love and affection;
  • trusts; and
  • charity reorganizations.

Consequence for Non-payment

According to section 15.1 of the Act, a lien can be created as a consequence for non-payment of land transfer tax. This lien will have priority over all following registered encumbrances. Thus, a purchaser should pay the required land transfer tax to avoid issues with their purchases and the Minister of Finance.

Refund

If a purchaser believes they have overpaid in land transfer tax, they can request a refund to the Minister of Finance by providing a written request explaining the reason for the refund. Supporting documentation should be accompanied with the written request such as a copy of the registered conveyance; evidence of the amount of tax paid on registration; a copy of the agreement of purchase and sale; and a copy of the statement of adjustments.

 

A purchaser should take note of the time limits for the refund applications. A first-time home buyer must make a refund request within 18 months after the date of the transfer of property. All other refund requests must be made within 4 years after the date of payment of the tax. If you believe that you overpaid land transfer tax please contact us for assistance with the refund application.

First-time Home buyers

Good news for first-time home-buyers is that they may be entitled to receive a refund of all or part of the land transfer tax, if they satisfy the following criteria:

  • Must be at least 18 years old;
  • Must occupy the home as their principle residence within 9 months of the date of transfer;
  • Cannot have ever owned an eligible home, or an interest in an eligible home, anywhere in the world, at any time;
  • If the purchaser entered into an agreement of purchase and sale before December 14, 2007, the home must be a newly constructed home and the purchaser must be eligible for the Tarion New Home Warranty;
  • If the purchaser has a spouse, the spouse cannot have owned an eligible home, or had any ownership interest in an eligible home, anywhere in the world, while he or she was the purchaser’s spouse. If this is the case, no refund is available to either spouse; and
  • The purchaser cannot have previously received an Ontario Home Ownership Savings Plan.

 

New Land Transfer Tax Refund for First-Time Home buyers

For transactions closing before January 1, 2017, the maximum amount of refund that a first-time home buyer could receive was $2,000. Beginning January 1, 2017, if the price of the house you are purchasing is $368,000 or less, you do not pay any provincial land transfer tax. With respect to purchases of residential properties that have a value of consideration larger than $368,000, the maximum amount of land transfer tax refund will increase to $4,000. The increased amount applies to all transactions that close after January 1, 2017, regardless of the date of the agreement of purchase and sale.

 

If you have any questions regarding Land Transfer Tax or other aspects of your residential real estate deal, please do not hesitate to contact our office.

Shaida Rashidi

Student-at-Law