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Who is Responsible for Paying the Land Transfer Tax?

Who is Responsible for Paying the Land Transfer Tax?

Are you in the market for a new home? As you craft your budget and factor in costs, have you considered Land Transfer Tax? As a Toronto real estate agent, we are often asked the question “who is responsible for paying the land transfer tax?” If you aren’t entirely sure what that entails, have a read below to find out how it affects your purchase.

Land transfer tax is a tax payable once a property’s ownership is transferred between two parties in the province of Ontario. Though the interaction occurs between a buyer and a seller, it is the buyer that is fiscally responsible for the payment. There are some exemptions that apply to buyers, so take a look to see if you qualify! These exemptions include:

  • First-time homebuyers: New buyers to the market are eligible for a tax credit of $4000+ to apply to their land transfer tax. Keep reading to find out how this applies both provincially and municipally. 
  • Spouses: The tax is waived between spouses who exchange land and title between them.
  • Former Spouses: Once spouses go their separate ways, real estate may require title transfers and whether it’s self-appointed separation or court-ordered living arrangements, there is no applicable land transfer tax to be paid between exes. 
  • Farmland: There are some exemptions when it comes to family and the transfer of land, speak with a real estate lawyer to further your knowledge on particular properties. 

Do I Have to Pay Land Transfer Tax in Ontario?

Yes! Unless exempt as per the categories above. Buyers purchasing land in Ontario will be obligated to pay for the land transfer tax. 

How Much Are Land Transfer Taxes in Ontario?

Taking into consideration the current rates, in Ontario, land transfer tax is decided using this formula:

0.5% on the first $55,000 of the purchase price
1.0% on the portion of the purchase price above $55,000
1.5% on the portion of the purchase price above $250,000
2.0% on the portion of the purchase price above $400,000
2.5% on the portion of the purchase price above $2,000,000

When is the Land Transfer Tax Due?

You can be expected to pay your land transfer tax as soon as the property closes. Then the title and land are transferred between the buyer and seller. Once paid, the transfer of ownership can be officially registered with the government. 

How Do I know the Cost?

Keep in mind, land transfer tax is NOT factored into the listing price of the home. It’s a good idea to run the numbers with your Toronto real estate agent or real estate lawyer to gauge a better example of what your final costs will be once the taxes are worked in. This will affect your budget and what you can realistically purchase. You can use the formula above to clarify expectations.

Land Transfer Tax in Toronto

Did you know that if you’re shopping for real estate in the city, you can expect to pay twice the land transfer tax? This is because the City of Toronto imposes a municipal tax following the same formula as the provincial government. This only applies to properties purchased inside the following borders:

  • To the North–Steeles Avenue
  • To the West–Etobicoke
  • To the East–Scarborough
  • To the South–Lake Ontario

The Municipal Land Transfer Tax is calculated using the same formula as the Provincial Land Transfer Tax.

0.5% on the first $55,000 of the purchase price.
1.0% on the portion of the purchase price above $55,000
1.5% on the portion of the purchase price above $250,000
2.0% on the portion of the purchase price above $400,000
2.5% on the portion of the purchase price above $2,000,000

So, Toronto real estate buyers can expect to pay double the land transfer tax compared to those that are purchasing outside of the city. 

First-time Homebuyer Credit in Toronto

While they are expected to pay double the tax, they are also eligible for twice the tax credits. Qualified first-time home buyers can receive the $4,000 in provincial credits and upwards of $4,475 in municipal credits to use on land transfer tax.

How Does it Work?

Let’s run through a few examples to see what the buyer would be responsible for paying in terms of land transfer tax.

Example 1: Purchase of a $1M property outside Toronto
($55,000 x 0.5%)+($195,000 x 1.0%)+($150,000 x 1.5%)+($600,000 x 2.0%)
Ontario Land Transfer Tax would total: $16,475

Example 2: Purchase of a $1M property within Toronto
Ontario ($55,000 x 0.5%)+($195,000 x 1.0%)+($150,000 x 1.5%)+($600,000 x 2.0%)

+

Municipal ($55,000 x 0.5%)+($195,000 x 1.0%)+($150,000 x 1.5%)+($600,000 x 2.0%)

Ontario Land Transfer Tax would total: $16,475
Municipal Land Transfer Tax would total: $16,475
Combined Land Transfer Tax would total: $32,950

Example 3: Purchase of a $1M property outside of Toronto by a first-time home buyer

After the applied tax credit of $4000
Ontario Land Transfer Tax:
$16,475-$4,000=$12,475

Example 4: Purchase of a $1M property within Toronto by a first-time home buyer

After the applied tax credits of $4,000 and $4,075
Combined Land Transfer Tax would total:
$32,950-$8,475=$24,475

I hope this helps shed some light on land transfer tax and clarifies who is obligated to pay what. The last point to consider is that the land transfer tax comes out of the buyer’s pocket and cannot be paid using financing. This plays a big part in the overall affordability of your home so be sure to shop accordingly!

Legal Information provided by:
Zachary Soccio-Marandola
Real Estate Lawyer
socciomarandola.com

 

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