Purchasing property can be very costly in Canada. There are many additional taxes and fees assessed on top of the purchase price. Land transfer tax, or a similar tax or registration fee, is charged in most provinces on the purchase of a property. This tax must be paid at the time of closing, so it is critical to plan in advance.
Land transfer taxes, also known as property transfer taxes, are administered by the provincial governments and each province sets their own rules. British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Prince Edward Island and Quebec all levy a land transfer tax. This tax is assessed to the buyer on closing based on a percentage of the consideration paid. Rates typically range from 0.5% to 5%. The remaining provinces and territories do not levy a land transfer tax, but they charge a registration or transfer fee to the buyer when title passes. These fees are more modest than a land transfer tax.
The tax rate often increases based on the property value in many provinces. For example, in Ontario, land transfer tax is calculated as follows:
0.5% on amounts up to and including $55,000
1.0% on amounts exceeding $55,000, up to and including $250,000
1.5% on amounts exceeding $250,000, up to and including $400,000
2.0% on amounts exceeding $400,000
2.5% on amounts exceeding $2 million, where the land contains one or two single-family residences
Certain municipalities, such as Toronto and Montreal, also assess a municipal land transfer tax on top of the provincial tax rate. As an example, the land transfer tax rates in Toronto are equivalent to the Ontario rates listed above. Therefore, buyers who purchase property in Toronto will pay double the tax rate compared to buyers in other municipalities in Ontario.
Certain provinces, including British Columbia, Ontario and Prince Edward Island, offer a rebate of land transfer tax to first-time home buyers if they meet certain conditions. The rules vary by province, but typically the buyer must be at least 18 years of age, must not have previously owned a home anywhere in the world, and must purchase the home to be their primary residence. A buyer in Toronto may be eligible for a rebate of up to $4,000 of the provincial land transfer tax and up to $4,475 of the municipal land transfer tax. In effect, these rebates exempt approximately $400,000 of the purchase price from tax.
The tax is typically assessed based on the consideration paid. In most situations where a property is sold to an unrelated buyer, the consideration paid would be the fair market value of the property. The tax can be assessed based on the fair market value in situations where it exceeds the consideration. This can occur when property is transferred without consideration or sold below fair market value to a related individual.
Land transfer tax must be paid when title passes. It cannot be added to your mortgage. Your lawyer will arrange for payment on the closing date.
Land transfer tax is typically the most significant expense when purchasing a property other than the purchase price itself. Unlike the purchase price, it must be paid up front and cannot be paid over the term of a lengthy mortgage. Buyers must plan ahead so they have adequate cash available at the time of closing.
For more information, please contact firstname.lastname@example.org or 1 844-GYTD-CPA