Land Transfer Tax for First Time Home Buyer
Land transfer tax is a tax imposed by the Canadian government on the buyer of a property, and the latter pays it to the provincial government on closing – that is when the deal is complete and the title is formally transferred to the purchaser.
All provinces in Canada, except Alberta and Saskatchewan, charge the transferees a land transfer tax, calculated as a percentage of property value, usually using asking price as the base. Alberta and Saskatchewan instead charge the real estate purchasers a much smaller transfer fee, which is fixed for different sizes of land.
In Ontario for example, the buyer of a property must pay a land transfer tax regardless of whether the transfer has been at the land registry office or not. The land here means any plain piece of land, constructed and semi-constructed buildings, residential units, single-family houses etc.
The tax rates prevailing in Ontario have not changed since June 1, 1989. The details of the tax rate are given below:
- 0.5% of the value of the consideration up to and including $55,000,
- 1% of the value of the consideration which exceeds $55,000 up to and including $250,000, and
- 1.5% of the value of the consideration which exceeds $250,000, and
- 2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family houses.
The land transfer tax is normally calculated on the basis of the amount paid by the transferee to purchase the property as well the outstanding mortgage or debt assumed by the transferee in the transaction.
In some cases, the land transfer tax is based on the property’s FMV (Fair Market Value). The Canadian Revenue Agency (“CRA”) defines FMV as “the highest price, expressed in dollars, that a property would bring in an open and unrestricted market, between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other.” Land transfer tax will be based on FMV when:
- a lease can exceed 50 years;
- land is transferred from a company to one of its shareholders; or
- land is transferred to a company and the shares of the company have been issued.
There are certain land transfers in which the transferee is exempted from land transfer tax, but these exemptions are limited. The situations in which the transferee will be exempted from the tax are
- when transfer takes place between spouses
- an individual transfers land to his/her family business corporation
- a farmed land is transferred between family members
To help first-time homebuyers offset the unwelcome cost, the Canadian government has designed the “Land Transfer Tax Refund Program”. The program offers land transfer tax rebates to all the first-time home buyers who have purchased land after December 13, 2007.
