Calculating Land Transfer Tax in Ontario

Introduction

Land Transfer Tax (LTT) is an important step of the home buying process that often goes overlooked by potential homebuyers. This tax, levied by the provincial government when property ownership is transferred from the seller to the buyer, can add up to a significant amount. Therefore, understanding LTT, how it’s calculated, and the factors that influence it is essential for anyone planning to buy a property in Ontario.

Understanding Land Transfer Tax

The land transfer tax is a mandatory provincial tax that is typically paid to the province by those who purchase or gain a beneficial interest in a property, and it is due when the transaction is finalized. The calculation of this tax is usually based on the purchase price of the land, along with any remaining mortgage or debt that was assumed as part of the purchase agreement.

However, in certain situations, the land transfer tax is calculated based on the land’s fair market value. This can occur in scenarios such as:

• when a lease is transferred with a remaining term that could surpass 50 years,
• when a corporation transfers land to one of its shareholders, or
• when land is transferred to a corporation in exchange for issued shares.

The tax is based on the purchase price of the property, and is calculated using a sliding scale, with rates increasing as the property value increases.

How is Land Transfer Tax Calculated in Ontario?

The current rates are as follows:

  • 0.5% on the first $55,000
  • 1.0% on the amount from $55,000 to $250,000
  • 1.5% on the amount from $250,000 to $400,000
  • 2.0% on the amount from $400,000 to $2,000,000
  • 2.5% on the amount over $2,000,000

For example, if you’re buying a property valued at $500,000, the LTT would be calculated as follows:

  • 0.5% on the first $55,000 = $275
  • 1.0% on the next $195,000 = $1,950
  • 1.5% on the next $150,000 = $2,250
  • 2.0% on the remaining $100,000 = $2,000

Adding these amounts together gives a total LTT of $6,475.

Please note that these rates are for Canadian citizens or permanent residents of Canada. Additional fees and restrictions may apply for non-residents.

First-Time Homebuyers

Potential first-time buyers should be aware of any applicable rebates or exemptions for which they may qualify. In Ontario, first-time homebuyers are eligible for a refund of the LTT up to $4,000. This can significantly reduce the financial burden of the LTT. However, it’s important to note that this refund is not automatic and must be claimed at the time of registering the land transfer. Therefore, potential homebuyers should be aware of this provision and ensure they claim the refund if eligible. It’s also worth noting that the definition of a “first-time homebuyer” may vary, and certain conditions must be met to qualify for the exemption.

Exemptions

There are certain instances where individuals are exempt from paying the land transfer tax on specific land transfers. These exemptions can include, but are not limited to:

• specific transfers between spouses,
• specific transfers from an individual to their family business corporation,
• specific transfers of farmed land between family members, and
• specific transfers of a life lease from a non-profit organization or a charity.

In cases where land is transferred between affiliated corporations and the transfer notice is not registered on title, a deferral of the land transfer tax may be possible.

Municipal Land Transfer Tax

For buyers acquiring a property in the City of Toronto, there may be a requirement to pay the City of Toronto’s own municipal land transfer tax in addition to the provincial LTT.

Here’s the breakdown of Municipal Land Transfer Tax (MLTT) rates for the City of Toronto:

  • 0.5% on the first $55,000
  • 1.0% on the amount from $55,000 to $250,000
  • 1.5% on the amount from $250,000 to $400,000
  • 2.0% on the amount from $400,000 to $2,000,000
  • 2.5% on the amount over $2,000,000
  • 3.5% on the amount over $3,000,000 and up to $4,000,000
  • 4.5% on the amount over $4,000,000 and up to $5,000,000
  • 5.5% on the amount over $5,000,000 and up to $10,000,000
  • 6.5% on the amount over $10,000,000 and up to $20,000,000
  • 7.5% on the amount over $20,000,000

There is a rebate of $4,475 that may be available for first-time homebuyers. The eligibility for the first-time home buyers’ rebate is governed by specific rules. It’s possible that some buyers may not qualify or may only be partially eligible. For further details, please consult with your real estate lawyer.

Conclusion

In summary, understanding land transfer taxes is essential for anyone buying a property in Ontario. Whether you’re a first-time or repeat buyer, being informed about these costs ensures a smoother process during your real estate transaction.

About Us

At TheBroker.ca Ltd, we understand the importance of having the right information when buying a home. If you have any questions about land transfer taxes, or other topics related to buying a home, talk to us. We can offer you helpful advice on the process of home buying and home financing.

At TheBroker.ca Ltd, we are constantly looking for ways to provide helpful advice related to mortgages, current mortgage rates, and more. If you have any questions or need further assistance, we offer a complimentary no-obligation consultation. Feel free to reach out to us at (519) 252-9665 during our regular business hours. Alternatively, you can fill out our contact form, and your message will be promptly emailed to us. We value your time and inquiries, and we make it our priority to respond to all messages within one business day. When reaching out, please provide us with your contact details, a brief overview of your mortgage needs, and the most convenient times for you to have a consultation. We look forward to assisting you with your mortgage.

This article was brought to you by TheBroker.ca Ltd., a mortgage brokerage that is licensed with the Financial Services Regulatory Agency of Ontario (FSRA), which regulates businesses in the financial sector. The Principal Broker Sash Trajkovski has over 20 years of real estate and mortgage experience in the Ontario marketplace. You can verify our licenses by visiting the following links from FSRA’s website: our corporate license and Principal Broker license. Our mortgages services are available to all residents of Ontario. If you’re in Ontario and looking for more personalized advice and information, consider booking your Complimentary Consultation today, and let us help you understand the details that will guide you on your path to a suitable mortgage solution.

Disclaimer: Please note that this information is current as of the date of publication and is intended to be general in nature. It is not intended to provide legal, tax, financial, or other professional advice and should not be relied upon as such. Always consult with a professional for advice tailored to your individual circumstances.

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