Last week there was a report that the Ontario Liberal government was going to add a second Land Transfer Tax when purchasing a home that would make the home buying decision much more expensive. Now, before everyone takes out their Kathleen Wynne effigies and proceeds to burn them, I’d like to take a moment and explain exactly what is happening and how it would affect you in the least non-clickbait way possible. However, if you’re tight for time or just want another soundbite here’s the TL;DR:

The TL;DR (too long;didn’t read)

• The Liberal government may allow municipalities the ability to charge a 2nd land transfer tax.
• If they do, your land transfer tax costs will approximately double. On a $500,000 home, that’s ~$6500 in extra closing costs.
• Rebates will still likely be in place for first-time buyers.
• OREA and its members will do everything in their power to stop it from happening.
• This will not cripple the economy and send us into a catastrophic recession in the GTA.
• You can partially blame the Liberal government and your local municipality.
• This will come to your local municipality if you live in the GTA.
• Will it stop people from buying homes? Not likely. Is it a pain in the ass? Yes.

What is The Land Transfer Tax?

You need to read my previous post about the land transfer tax before you go any further. It’s impossible to understand exactly what is happening if you’re really not sure what the LTT is or how it works. Take two minutes and read up on it. 

Is The Second Land Transfer Tax Official?

No. At least not yet.

So, here’s exactly what happened. The Ontario government reviews the Municipal Act and meets with various municipal sectors to discuss ways to help them improve their existing financial and revenue tools during what’s called the “comment period”.

In other words, they try to figure out ways for municipalities to be more efficient and make more money by figuring out if there is anything they can change in the Municipal Act. The comment period was open until October 31st.

Now, here’s why everyone went nuts last week.

The story came out on October 28th, a full 3 days before the comment period even ended, with unnamed “industry insiders” stating that the Liberal government had already made the decision to amend the Municipal Act to allow municipalities the ability to institute a Municipal Land Transfer Tax. 

What followed was story after story and comment section after comment section decrying the evil Liberals and their pursuit of making all of our lives miserable and tax-filled. But, before we resort to name-calling and turning this into another left vs right debate, let’s try to understand exactly what’s happening and what it might mean for us. Then, we can start to dole out some blame to the parties involved.

Five Important Questions You Need Answered

1) Who decides if there will Be a second LTT?

This is the biggest source of confusion. The Ontario government is the one that would AMEND the Act to allow municipalities the ability to institute their own Municipal LTT on top of the Ontario LTT. However, it is up to every individual municipality to decide this. So, even if the Ontario government decides to make the change to the Act, each individual municipality would be responsible for setting up a second land transfer tax.

Some mayors, like Ottawa’s Jim Watson, are already on the record saying that they are not interesting in adding a municipal land transfer tax to their city. They may change their tune if the Act is amended or future mayors might eventually bring the issue to council, but it’s important to remember this is done on an individual, municipal level. The Ontario government can only amend the Act which currently restricts every municipality outside of Toronto from charging a second LTT.

2) If the Liberals amend the Act, will my municipality add a second LTT?

Realistically speaking if you’re from somewhere in the GTA, the chances are extraordinarily high that your municipality would add a second land transfer tax if given the ability to do so. The reason it’s likely is because of the health of the real estate market in Canada’s most influential region. The decision to buy will likely not be greatly affected by a second land transfer tax in the GTA.

However, in smaller communities in Ontario, the second LTT might actually cause many families to rethink the decision to move, so those municipalities will have to more closer analyze the impact a second LTT will have on their markets.

So, if you’re reading this and you’re from the GTA, then cross your fingers that the Act won’t be amended.

3) Let’s assume the Act is amended, how much more will I pay?

We don’t have the details on how any of this would be calculated, but if we look to Toronto’s municipal land transfer tax, we can see that it’s calculation is very close to that of the Ontario Land Transfer Tax. So, if you want to do some really quick, dirty math, you can basically double the LTT as part of your closing costs. *The Toronto LTT is actually slightly cheaper but for the sake of simplicity let’s assume it’s equal.*

For example, on a $500,000 home the Ontario LTT is $6475. With a municipal LTT you’d be looking at approximately $13,000 in total land transfer taxes. That means that you’d have to come up with around another $6500 in order to close on the home. 

4) What about for first timers? Will there be a rebate?

Again, this is something we can’t possibly know yet. The Ontario LTT has a rebate of $2000 for first time homeowners and the Toronto LTT has a rebate up to $3725 (which covers home purchases up to $400K). If municipalities take the same approach as Toronto, then the LTT for first-timers will be significantly lower. For everyone else? Take the LTT, double it, and take that out of how much you’re planning to get out of the home. 

5) Who do I blame entirely for this?

Blame can be passed around to both the Ontario government and your local municipality. The Ontario Real Estate Association (OREA) and its members (people like me) will do their best to stop this from potentially happening because we know that the home buying process is already expensive and the last thing we need is to add another tax.

The issue is that most municipalities know that this won’t affect people buying homes…at least in the GTA. People would obviously be against it, but if faced with the choice of moving or not moving based on the tax, my guess (and the government’s) is that you will suck it up and eat the extra tax.

That may be an unpopular opinion but it’s the truth. Even people scraping together to afford a home will find a way to save more or simply borrow for closing costs. The home ownership dream is extremely strong in this country and won’t deter people from buying.