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How Does The Land Transfer Tax Work?
[Photo credit: Lendingmemo]

How Does The Land Transfer Tax Work?

As a real estate agent I get asked a bunch of questions on a daily basis. Some of them are very straightforward and some of them are very complicated. So, I decided to put together a Q&A series with questions directly from the minds of my clients. Some of these you’ve probably wanted to ask (and hence why you’re reading this right now) and some you probably had never thought of and wanted to explore. Either way I’ve got you covered. So, let’s dip into the mailbag…

Q: How do land transfer taxes work? How much and who pays?

In Ontario, the Land Transfer Tax is the responsibility of the buyer. It will be paid for as part of your closing costs before you take possession of your new home. The Land Transfer Tax is variable and depends upon the purchase price of the home.

Example of how to calculate the Tax…

Let’s say your real estate sales representative has negotiated a purchase price of $400,000 for your home in Milton. There are two ways to calculate the total. The first is the quick and easy way – simply Google “Land Transfer Tax Calculator” and you will have access to literally thousands of websites whereby you can put in your purchase price and it will spit back out the total. The second way is by understanding the tax structure and calculating it manually. The current tax structure is as follows (and has been this way since 1989):

Amounts up to and including $55,000 = 0.5%

Amounts between $55,000 – $250,000 = 1.0%

Amounts between $250,000 – $400,000 = 1.5%

Amounts over $400,000 = 2.0%


Therefore, the total amount of the Tax would be calculated as follows:

$55,000 x 0.005 = $275

$250,000 – $55,000 = $195,000 x .01 = $1950

$400,000 – $250,000 = $150,000 x . 015 = $2250

Total Land Transfer Tax = $275 + $1950 + $2250 = $4475

So, $4475 would be added to your total closing costs. Two things should be noted: 1) if you’re purchasing in Toronto, there is a second Land Transfer Tax that you’d be required to pay; and 2) if you are a first-time homebuyer, you are eligible for a $2000 rebate on the land transfer tax.

The Toronto Land Transfer Tax

Yes, purchasing in Toronto requires an additional Land Transfer Tax. Toronto is the only municipality currently in Canada that charges an additional tax. The tax breakdown is similar to Ontario’s, however the value between $55,000 – $400,000 is only taxed at 1%. This makes the Tax slightly less expensive than Ontario’s. Again, if the purchase price is $400,000, the Toronto Tax would be $3725. This would make a grand total of $8200 in Land Transfer Taxes. That’s quite a chunk of change to come up with on closing, so you should be taking that into account when getting your preapproval done by your lender. Typically, closing costs should account for about 1.5-2% of your mortgage preapproval allowance.

The First-Time Home Buyer Rebate

Now, first-timers do get a break on the Land Transfer Tax as they are eligible for up to a $2000 rebate on the Ontario portion of the tax and up to $3725 on the Toronto portion of the tax. This amount is deducted by your real estate lawyer from your closing costs. So, in the above example, whether you were purchasing outside of or in Toronto, your Land Transfer Tax would be $2475 in either scenario. That is because the Toronto tax, at $400,000, equals the maximum amount of the rebate. Above the $400,000 mark and you begin to pay more to live in Toronto. And, with the way real estate prices are now, you’ll surely be paying more unless you plan to live in a smaller condo.

Conclusion

The Land Transfer Tax is an essential part of budgeting for closing costs. It’s important to understand the difference in cost between Toronto and the rest of the GTA. You should also think long and hard about situations where you are put on title by relatives or friends to help with a purchase. If you do that, you will have used up your first-time buyer status.

If you’d like more detail on the matter, please contact me and I’ll put you in touch with my recommended real estate lawyers.

Mike Santos

I’m Mike. I created this website. I'm a real estate sales representative, but I’m a consumer behaviourist at heart. I like to understand what makes people tick and find out what’s really important to them. I value honesty and integrity over everything. I’m fiercely competitive and loyal and view myself more as a consultant than salesperson. In my free time I’m a registered sportsaholic and TV junkie.

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