A New Year can bring about many changes and Toronto’s real estate market is no exception to change. Beginning on January 1, 2024, a new “Luxury Land Transfer Tax” goes into effect for the City of Toronto. As a Toronto real estate agent, it’s important to update our buyers and sellers about this change. Let’s explore the new “Luxury Land Transfer Tax” and what it means if you are planning to purchase a Toronto home valued at $3 million or higher.
What is the Toronto Luxury Land Transfer Tax
Back in September of 2023, the City Council of Toronto voted to implement a “Luxury Land Transfer Tax” that would begin on January 1, 2024. This tax will impact Toronto real estate by increasing the Land Transfer Tax for properties that sell for $3 million or more. This is in addition to the Ontario land transfer tax of 2.5%. The City of Toronto has created an updated sliding scale for the rates of the Municipal Land Transfer Tax (MLTT) as follows:
- Luxury Homes between $3 to $4 million taxed 3.5%
- Luxury Homes between $4 to $5 million taxed 4.5%
- Luxury Homes between $5 to $10 million taxed 5.5%
- Luxury Homes between $10 to $20 million taxed 6.5%
- Luxury Homes over $20 million taxed 7.5%
To compare, Toronto’s former MLTT rates were (before January 1, 2024):
- Homes up to $55,000 taxed 0.5%
- Homes between $55,000.01 to $250,000 taxed 1.0%
- Homes between $250,000.01 to $400,000 taxed 1.5%
- Homes between $400,000.01 to $2,000,000 taxed 2.0%
- Homes over $2,000,000 taxed 2.5%
For those who plan on purchasing a home over $3 million after January 1st or will be closing after January 1st, the new thresholds will be in effect which will lead to higher closing costs. Even if you signed your Agreement of Purchase and Sale before January 1st but are not closing until after January 1st, your sale will be subject to the new MLTT Rate percentages.
Buying a $15 Million Home
Let’s explore these rates using an example where a buyer plans on purchasing a $15 million home in Toronto. With the city’s new Luxury Land Transfer Tax rates, the buyer, as of January 1st, would pay a one-time tax to the City of Toronto of $975,000. With the previous rates, the tax on a $15 million city of Toronto property would have been $375,000. Toronto is the only city in the province of Ontario that requires a municipal land transfer tax in addition to the province’s land transfer tax. The example purchase of this $15 million luxury home is also subject to a 2.5% provincial land transfer tax. This makes the total land transfer tax owed on this property equal to $1.35 million.
How The Tax Will Impact Sales
It seems drastic for the City of Toronto to introduce such a staggering tax hike to a market that is already sluggish. It’s unknown what the full impact will be for buyers as the year unfolds ahead. Some agents have noted that their high-end clients are still moving forward with their luxury home purchases despite the new tax. While high-end clients may not be overly pleased with the increased taxes, many of them still have the means to pay it.
The increased tax could potentially cause another issue in terms of a shortage in inventory. Buyers that could break into the over $3 million market may now be discouraged from doing so with the taxes. Therefore, they could continue to buy in the under $3 million range to avoid the tax thus lessening the inventory for the rest of us.
Will The Tax Impact Other Markets?
Since Toronto is the only city in Ontario that imposes an additional Municipal Land Transfer Tax on top of the Provincial Land Transfer Tax, will the increased MLTT discourage buyers in the luxury market from making purchases in Toronto? Only time will tell but overall, it seems unlikely. Those in the luxury market will still want a piece of Toronto real estate despite the extra taxes. However, as the new tax was just introduced in 2024 to a market that is already stagnant, there could be an increased benefit for the affluent markets just outside of Toronto as people get adjusted to the new rates. Buyers may be more enticed to purchase in luxury neighbourhoods within Mississauga and Oakville as these municipalities do not charge an extra municipal land transfer tax.
As a Toronto real estate agent, it is imperative that our clients and potential clients understand any and all changes to the Toronto real estate market. If Toronto’s new “Luxury Land Transfer Tax” leaves you with any questions, don’t hesitate to reach out!
If you or someone you know is looking to buy, sell, or invest, our team of Toronto real estate experts is here to help. Feel free to book a no-obligation chat. Book Consultation.
Danielle Demerino
ddemerino@royallepage.ca
416-728-5401
Brittany Huggins
bhuggins@royallepage.ca
