Buying your first home is a truly exciting time, but it can also be a financially stressful time. Every dollar counts and suddenly, there are new taxes and financial obligations in place that you didn’t have before.
When buying a home, the land transfer tax can make up a significant percentage of your final closing costs. But what exactly is this tax, how much is it, and do first time home buyers pay land transfer tax in Ontario?
To help you make sense of the situation and potentially save some money, we’ve put together this handy resource.
What Is Land Transfer Tax?
Whenever you purchase land in Ontario, whether it is an undeveloped property or a finished home, you will be charged a land transfer tax.
Buyers are required to pay the land tax when the sale closes. The cost is based on the value of the property purchased.
The Ontario land transfer tax was first introduced in 1974 but over the years the conditions, rates, and exemptions have been modified.
There are similar taxes that will be applied in addition to the land transfer tax based on the circumstances. In the City of Toronto, for example, there is a municipal land transfer tax. And for buyers that are not permanent residents or Canadian citizens, an additional Non-Resident Speculation Tax will also be applied.
First time home buyers, however, may be eligible for the first time homebuyer rebate of up to $4,000. First time buyers in Toronto may be eligible for a rebate on the municipal land transfer tax of up to $4,475.
Who Pays Land Transfer Tax?
The Ontario Land Transfer Tax is paid by the purchaser of the property.
The seller does not pay any tax related to the land transfer as they paid it when they initially bought the property.
The payment is required upfront on the day the property transfer is registered or within 30 days of the closing date.
How Much is Land Transfer Tax in Ontario?
There is no set percentage for the Land Transfer Tax in Ontario. It is set on a sliding scale that depends on the value of the property purchased.
The higher the value of the property, the higher the Land Transfer Tax will be.
| Value of the Consideration | Tax Rate |
|---|---|
| $55,000 and Under | 0.5% |
| $55,000 to $250,000 | 1.0% |
| $250,000 to $400,000 | 1.5% |
| Amounts exceeding $400,000 | 2.0% |
| amounts exceeding $2,000,000, where the land contains one or two single-family residences | 2.5% |
So, if you were buying a $500,000 home in the City of Kingston, your Land Transfer Tax would be calculated as follows:
| Tax Bracket | Marginal Tax Rate | Marginal Purchase Price | Marginal Tax |
|---|---|---|---|
| First $55,000 | 0.5% | Column 3 Value | $275 |
| $55,000 to $250,000 | 1.0% | Column 3 Value 2 | $1950 |
| $250,000 to $400,000 | 1.5% | Column 3 Value 3 | $2250 |
| $400,000 to $2,000,000 | 2% | Column 3 Value 4 | $2000 |
| Over $2,000,000 | 2.5% | Column 3 Value 5 | 0 |
| Total Tax Due | $6475 |
As you can see, a home buyer in Kingston Ontario would be charged $6475 in Land Transfer Tax. This amount would be the same on a $500,000 purchase anywhere in Ontario, except Toronto.
Toronto applies its own municipal land transfer tax equal to the Ontario Land Transfer Tax. So, the same purchase price of $500,000 in Toronto would yield a $12,950 tax hit, plus a $75 +HST administrative fee.
Qualified first-time buyers, however, may not have to pay this full amount. They may be eligible to receive up to $4000 in rebates. And first time buyers in Toronto may receive up to an additional $4475 in rebates.
How Do You Qualify For a Land Transfer Tax Rebate in Ontario?
To qualify for the Land Transfer Tax Rebate in Ontario, you must meet the following criteria:
- Must be at least 18 years old
- Must occupy the home as a principal residence within nine months of the date of transfer
- Must not have previously owned an eligible home, or an interest in an eligible home, anywhere in the world, at any time
- If the buyer entered into an agreement of purchase and sale before December 14, 2007, the home must be newly constructed and the buyer must be eligible for the Tarion New Home Warranty
- If the buyer has a spouse, the spouse must not have owned an eligible home or had an ownership interest in an eligible home, anywhere in the world, while they were the buyer’s spouse. If the spouse has previously owned a home or an interest in one, no rebate is available to either spouse.
As of January 1, 2017, this rebate program was restricted to Canadian Citizens and permanent residents.
To ease the transition, buyers that entered agreements of purchase and sale on or before November 14, 2016, would remain eligible for the refund regardless of residency or citizenship status.
Buyers that would have been eligible for a refund but are not permanent residents or citizens when the transaction closes have 18 months following registration to become eligible for the rebate.
Once citizenship or permanent resident status has been obtained, the buyer may apply for the rebate as long as it is within 18 months of the registration of the closing or the date of the unregistered disposition.
A buyer who is eligible for the rebate and has a spouse who is not a Canadian citizen or a permanent resident on the date the closing is registered or the date of the unregistered disposition, the buyer cannot include the spouse’s interest in determining the maximum rebate. But, if the spouse becomes a Canadian citizen or a permanent resident within 18 months of the closing date, the buyer may claim the spouse’s interest. Combined, the claims cannot exceed the maximum rebate amount of $4,000.
All qualifying buyers must apply for the rebate within 18 months of the registration of the closing or the date of the unregistered disposition.
Any application made or rebate payment received is subject to audit by the Ministry of Finance. If a person obtains or tries to obtain a rebate by deceit, falsehood, or fraud, charges and fines may apply. The maximum fine, once convicted, is $4,000.
How To Claim a Land Tax Refund in Ontario?
There are a few different ways you can claim the Land Tax Refund for First Time Home Buyers.
One method is to claim the rebate online through the electronic land registration system. You must select the appropriate electronic statements found under the “Explanation” tab of the Land Transfer Tax section. You must complete statements 9028 or 9029. You must also complete statements 9127 and 9128 or (9129 and either 9130 or 9131) and 9132.
If you file for the rebate electronically, there is no need to submit a paper copy of the Ontario Land Transfer Tax Refund Affidavit for First-Time Purchasers of Eligible Homes to the ministry.
Qualified individuals can also apply for an instant rebate when submitting paper registrations at the Land Registry Office and filing the Ontario Land Transfer Tax Refund Affidavit For First-Time Purchasers of Eligible Homes along with the Transfer/Deed and Land Transfer Tax Affidavit.
For rebates that cannot be claimed at the time of registration, the tax will be payable but a refund can be later obtained through the Ministry of Finance. To claim the rebate in this way, you must submit the following documents:
- The Ontario Land Transfer Tax Refund Affidavit For First-Time Purchasers of Eligible Homes
- A copy of the registered conveyance (transfer/deed). If not registered electronically, submit a photocopy of the Land Registry Office’s original showing the tax paid
- A copy of the docket summary, if the conveyance was registered electronically
- A copy of the agreement of purchase and sale, together with all schedules, amendments and assignments, along with a copy of the statement of adjustments relating to the conveyance
- Proof of occupancy, with the new address listed, such as copies of telephone/cable bills, credit card statements, driver’s licence, newspaper/magazine subscriptions, etc
- For agreements of purchase and sale entered into before December 14, 2007, a copy of the Tarion New Home Warranty, which is also known as the Certificate of Completion and Possession
- For agreements of purchase and sale entered into after November 14, 2016 and registered on or after January 1, 2017, proof of Canadian citizenship or permanent residence in Canada
One way to ensure that you are eligible, have taken all the required steps and filled out the appropriate paperwork accurately is to use a real estate lawyer. It is a good idea to have a lawyer review or draft any agreements and conveyances before moving forward anyway, so it simply makes sense to seek their support and advice with regard to Land Transfer Tax rebates for first-time home buyers.
Key Takeaways
The Land Transfer Tax in Ontario can significantly increase the purchase price of your new home. But a rebate, to a maximum of $4000, is available to qualify first-time home buyers Province-wide.
To ensure you don’t miss out on this rebate and all paperwork is filled out and filed properly, reach out to the knowledgeable lawyers at RBHF Professional Corporation.
We are well-practiced in the area of Real Estate law and are ready and able to support you in every step of one of the biggest purchases you will ever make.
Contact us today to learn more or book a consultation.