Land Transfer Tax, Rebates, and Exemptions For First Time Buyers

When it comes to answering these questions and deciphering their answers, consulting a real estate lawyer is often a good first step for potential homeowners. Generally speaking, the Ontario Land Transfer Tax Act and the Municipal Land Transfer Tax Act of Toronto provide that buyers are obligated to pay a land transfer tax upon the purchase of a property and the amount of the tax is based upon what is called “the value of the consideration”, which in most cases is the amount of money paid. Land transfer tax, like income tax, is charged on a marginal increasing scale and once the value of the consideration exceeds $400,000.00, the land transfer tax on the overage is charged at 2% for each of the Ontario and Toronto tax.  The Ontario land transfer tax applies to all properties in Ontario. The Toronto tax only applies to properties within Toronto. Buyers in Toronto must pay the sum of each of the taxes.

LAND TRANSFER TAX RATE

(SINGLE FAMILY RESIDENCE)

EXEMPTIONS

There are exemptions from payment of land transfer tax, the most common of which are:

1. Transfers between spouses for natural love and affection (i.e. no money is paid) are exempt;
2. Transfers between immediate family members (generally speaking, between parents and children) are free of land transfer tax if no money is being paid and if there is no mortgage registered against the property. If there are mortgages registered against the property, the government takes the position that there is consideration (or value) to the grantor/seller in that the purchaser is assuming the seller’s obligation to pay the mortgage and as such the government charges land transfer tax based on the principal amount outstanding under the assumed mortgages; and
3. Transfers between trustees and the beneficial owners of the same property where the beneficial owner has paid for the property, paid the land transfer tax and paid all the costs relating to the property. In these situations the trustee can transfer the property to the beneficiary, or vice versa, free of land transfer tax (which isn’t really free because the beneficial owner has already paid the land transfer tax at the time of the trustee’s initial purchase of the property).

FIRST TIME HOME BUYER REBATES

Qualified first time purchasers are entitled to rebates, not complete exemptions from payment of land transfer tax. The maximum rebate under the Ontario Land Transfer Tax Act is $2,000.00 (which maximum rebate is achieved when the purchase price is $227,500.00) and under the Municipal Land Transfer Tax Act is $3,725.00 (which maximum rebate is achieved when the purchase price is $400,000.00), regardless of the number of qualified first time home buyers. Accordingly, the maximum rebate available to qualified first time purchasers is $5,725.00 per property, regardless of the number of buyers. Where the rebate exceeds the land transfer tax payable, the government will only rebate the amount of the land transfer tax, not more. Where the land transfer tax otherwise payable exceeds the rebates, the difference must be paid by the buyers.  Based on Ontario land transfer tax rates, first-time home buyers with homes of $227,500.00 or less will avoid the tax altogether. Based on Toronto land transfer tax rates, first-time home buyers with homes of $400,000 or less will avoid the tax altogether.

To  qualify as a first time home buyer, the buyer must be at least 18 years of age and occupy the house/condominium as his/her principal residence within 9 months of the closing. The first time purchaser cannot have owned a home/condominium or had any ownership interest in a home, anywhere in the world , and the spouse, if any, of the buyer cannot have owned a home or had any ownership interest in a home anywhere in the world while he or she was the purchaser’s spouse. If the property is a newly constructed home or condominium purchased from a builder where the agreement was entered into before December 14, 2007, the buyer must qualify for the Tarion home warranty.