When you purchase a home, the government applies a land transfer tax. This tax can easily be overlooked by investors who are weighing the final cost of a property. Regardless of the final figure, it’s almost always the largest piece of your closing costs!
All provinces except Saskatchewan and Alberta have a land transfer tax, and they are all calculated based on the final purchase price of the property. How are these figures calculated here in Ontario?
How Is The Land Transfer Tax Calculated?
When you buy a property and the land on which it rests, you must pay a tax after the transaction closes. In our province, the land transfer tax is applied to your property in a tax-bracket system.
Let’s apply the bracket system to a $500,000 property in Ontario:
|Tax Bracket||Marginal Tax Rate||Marginal Purchase Price||Marginal Tax|
|First $55,000||0.5%||x $55,000||= $275|
|$55,000 – $250,000||1%||x $195,000||= $1,950|
|$250,000 – $400,000||1.5%||x $150,000||= $2,250|
|$400,000 – $2,000,000||2.0%||x $100,000||= $2,000|
In the end, you’ll pay $6,475 in total taxes on this $500,000 home. The buyers of properties in Ontario pay the entire land transfer tax – sellers never pay.
There are special rules when buying real estate in Toronto. It’s important to note that there is an additional municipal land transfer tax for homes within an area bounded by Steeles Avenue as the northern border, Etobicoke as the western border, Scarborough as the eastern border, and Lake Ontario as the southern border. This municipal land transfer tax follows the same bracket system as the provincial land transfer tax.
The Ontario Land Transfer Tax Refund
For first-time buyers, there is an Ontario land transfer tax refund. This is equal to the full value of the land transfer tax up to a maximum of $4,000. To get this refund, the homeowner must apply within 18 months after the purchase of the home. They should definitely apply, too: the refund should cover the fully taxed amount on homes up to $368,333. For houses over this amount, homebuyers will receive the maximum refund but have to pay the remaining land transfer tax balance.
The buyer must be a Canadian citizen or permanent resident of Canada, occupy the home within nine months of purchase, cannot have owned a home anywhere in the world, and their spouse cannot have owned a home while being the buyer’s spouse.
Never Forget The Land Transfer Tax!
When getting into the investment property game, it’s important to know the real costs of the property. Talk with your lawyer about the land transfer tax, because they will arrange the payment of them when the deed to the property is transferred to your name!