Have you ever wondered about the details pertaining to Land Transfer Tax? What is it? Who pays for it? And why? As a Toronto real estate agent, I get a ton of questions about Land Transfer Taxes and I figured why not break it down for my clients and readers? My name is Danielle Demerino, most of you know me as a Toronto realtor looking to educate my clients and help them attain their real estate goals!
Land transfer tax is a payable tax that’s due as soon as a property (real estate) is transferred from a buyer to a seller in Ontario. It is the responsibility of the buyer to pay this tax, unless they are eligible for an exemption. It’s important to know about exemptions and how you can save yourself some money when purchasing if you do indeed qualify. So, who’s exempt?
- First time homebuyers: Enjoy the perks of purchasing your first property as first-time buyers are eligible for a credit upwards of $4,000.
- Spouses: There is no expectation for couples to pay one another for the transfer of land or property between them. This tax is waived.
- Former Spouses: The same goes for former spouses when transferring property ownership as per separation or court order.
- Farmland: while this one is a little less cut and dry, there are some exemptions for family members transferring farmland between them.
Do I Have to Pay Land Transfer Tax in Ontario?
Yes! Unless you fit into one of the above categories, if you are purchasing land, you will be responsible for paying this land transfer tax in the province of Ontario. Sellers don’t need to worry about any land transfer tax, as it’s up to the buyer to cover these fees.
How Much Are Land Transfer Taxes in Ontario?
Land transfer tax is not a simple one-fee-fits-all number. Instead, in Ontario, the figure is based on the actual purchase price of the property. To lay it out clearly, the current 2023 land transfer rates are as follows:
0.5% on the first $55,000 of the purchase price
1.0% on the portion of the purchase price above $55,000
1.5% on the portion of the purchase price above $250,000
2.0% on the portion of the purchase price above $400,000
2.5% on the portion of the purchase price above $2,000,000
When is Land Transfer Tax Payable?
Unlike your initial deposit, your land transfer tax is not due until the closing of the property as this is when the land and its ownership are officially transferred between parties. Until the tax is paid, the transfer of ownership cannot be registered with the provincial government.
Hidden Costs?
When looking for your next property, it’s important to note that it’s not just the sticker price that makes up the bottom line. Consider things like lawyer’s fees and your land transfer tax when compiling your budget. Your real estate lawyer will be able to work out an estimate of your payable tax using the current rates and the equation above.
Land Transfer Tax in Toronto
If you are looking to buy in Toronto, there is a second land transfer tax imposed on buyers by the City. If you fall in between the established city boundaries, you’re paying this municipal tax as well.
The city limits are outlined by the following borders:
- Steeles Avenue (North border)
- Etobicoke (West border)
- Scarborough (East border)
- Lake Ontario (South border)
The Municipal Land Transfer Tax is determined by the same principles as the provincial tax:
0.5% on the first $55,000 of the purchase price
1.0% on the portion of the purchase price above $55,000
1.5% on the portion of the purchase price above $250,000
2.0% on the portion of the purchase price above $400,000
2.5% on the portion of the purchase price above $2,000,000
Yes, you read that correctly. Toronto residents pay double the land transfer tax compared to those buying beyond the city limits.
First-time Homebuyer Credit in Toronto
With the double taxation comes double the applicable tax credits for eligible first-time home buyers. This can be applied to offset the Municipal Land Transfer Tax. This enables qualified buyers to receive $4,000 in provincial credits and up to $4,475 in municipal credits which can all be applied to the payable land transfer sums. To see this tax in action, let’s look at an example:
Scenario 1–Purchase of a $1M property outside of the established Toronto borders
($55,000 x 0.5%)+($195,000 x 1.0%)+($150,000 x 1.5%)+($600,000 x 2.0%)
Your Ontario Land Transfer Tax would total: $16,475
Scenario 2–Purchase of a $1M property within the established Toronto borders
($55,000 x 0.5%)+($195,000 x 1.0%)+($150,000 x 1.5%)+($600,000 x 2.0%) Ontario
($55,000 x 0.5%)+($195,000 x 1.0%)+($150,000 x 1.5%)+($600,000 x 2.0%) Municipal
Your Ontario Land Transfer Tax would total: $16,475
Your Municipal Land Transfer Tax would total: $16,475
Your Combined Land Transfer Tax would total: $32,950
Scenario 3–Purchase of a $1M property outside of the established Toronto borders by a first-time home buyer
($16,475-$4,000) After the applied tax credit of $4000)
Your Ontario Land Transfer Tax would total: $12,475
Scenario 4–Purchase of a $1M property within the established Toronto borders by a first-time home buyer
($32,950-$8,475) After the applied tax credits of $4,000 and $4,075)
Your Combined Land Transfer Tax would total: $24,475
Hopefully, this helps to bring some understanding when it comes to Land Transfer Tax. You should know what your buyer’s responsibilities are when making the purchase of a new property, in or outside of the city.
One final note, Land Transfer Tax must be paid immediately out of pocket upon closing as a buyer’s expense that cannot be financed. This can drastically affect your budget so make sure to look at all the factors before signing on the dotted line!
