This edition’s question comes from Gaetano in Brampton:
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. Let’s use an example to calculate the cost of 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
But, what if I am purchasing a home in Toronto? Is it true there is an ADDITIONAL tax?
Yes, 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.
If your purchase price were $400,000, the tax would be calculated as follows:
$55,000 x 0.005 = $275
$400,000 – $55,000 = $345,000 x .01 = $3450
Therefore, the Toronto Land Transfer Tax would be $3725. This would make a grand total of $8200 ($3725 + $4475) 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.
What about if I’m a first-time buyer?
First-timers do get a bit of a break on the Ontario Land Transfer Tax as they are eligible for a $2000 rebate. This amount is deducted by your real estate lawyer from your closing costs. So, in the above example, if you were purchasing outside of Toronto, your Land Transfer Tax would only be $2475 after rebate. If purchasing in Toronto, there is also a rebate up to a maximum of $3725 on the Toronto Land Transfer Tax. If you look closely, the $3725 rebate completely offsets the Toronto Tax payable for a $400,000 home, and you’d only be left with the $2475 portion of the Ontario Land Transfer Tax!
I hope that helps, Gaetano, and if you’d like more detail on the matter, please contact us and we’ll put you in touch with a few highly recommended real estate lawyers.