Land Transfer Tax and Rebates for First Time Buyers
What is Land Transfer Tax, and when does it need to be paid?
Land Transfer Tax is paid by the purchaser of a property in Ontario. There are two applicable taxes, depending on where the property is located.
Outside of the City of Toronto, a provincial Land Transfer Tax is paid to the province on closing. Inside the City of Toronto, the provincial Land Transfer Tax is still payable, but there is an additional Municipal Land Transfer Tax of an equal amount that is paid to the City of Toronto.
Land Transfer Tax is always paid by the purchaser of a property: there is no Land Transfer Tax obligation for the seller of a property. The tax is remitted when a transfer of title is registered with the Land Registry Office, and is paid by your lawyer on closing on your behalf.
The amount of Land Transfer Tax for a given purchase price can be calculated below.
How is Land Transfer Tax different for first time buyers?
First time home buyers in Ontario and Toronto can qualify for a rebate for a portion of the Land Transfer Tax payable. In most cases, these rebates are applied at the time of closing, so only the Land Transfer Tax amount net of the rebate needs to be paid on your closing date.
In order to qualify as a first time buyer for the Land Transfer Tax rebates, you must:
Never have owned an interest in property anywhere in the world prior to your current purchase
Never have been the spouse of someone while that spouse owned an interest in property anywhere in the world
Occupy the property as your primary residence within 9 months of your closing date
Be a Canadian citizen or permanent resident
Be at least 18 years of age
If you meet these criteria, you are eligible for up to a $4,000 reduction in the provincial Land Transfer Tax payable. For purchases within the City of Toronto, there is an additional rebate of up to $4,475 of the municipal Land Transfer Tax available.
What if I am purchasing the property with somebody else?
If all purchasers are qualifying first time home buyers, then 100% of the provincial and municipal Land Transfer Tax rebates are available. However, what happens if some purchasers are first time home buyers, and some purchasers are not?
A qualifying first time home buyer can only claim the rebates in proportion to the ownership interest they are taking in the property. So, if a first time buyer is sharing title equally with another purchaser who is not a first time buyer, only 50% of the normal Land Transfer Tax rebates will be available.
Frequently a first time buyer might need a parent on title in order to qualify for mortgage financing: in these cases, many parents will take a 1% interest in title, allowing the first time buyer to take a 99% interest in title and therefore claim 99% of the available Land Transfer Tax rebates.
Land Transfer Tax can be complicated and legal advice in this area is crucial: if you have questions please contact us to discuss.