What You Need To Know About Ontario Land Transfer Tax

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Land transfer tax (LTT) is often overlooked when looking at the total cost of buying a home. All provinces have a land transfer tax, except Alberta and Saskatchewan, who instead collect a much smaller transfer fee.

When you buy land or an interest in land in Ontario, you pay Ontario’s land transfer tax. Land includes any buildings, buildings to be constructed, and fixtures, such as light fixtures, built-in cabinetry, and appliances.

The provincial land transfer tax can add one to two percent of the cost of a home purchase if you live outside of Toronto. If you buy in Toronto, the amount is almost double.

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Who pays land transfer tax?

Buyers of houses and condos in Ontario pay the land transfer tax when they purchase a property – Sellers never pay. 

On transfers of residential real property in Ontario, Ontario Land Transfer Tax (LTT) is calculated on the purchase price (less a calculation regarding HST, if the property purchased is a newly built home).

The Ontario land transfer tax is payable by the purchaser on the purchase price upon registration of a Transfer/Deed of Land in the Ontario Land Registry Office on closing based on the following upward sliding scale:

• 0.5% on the first $55,000 of the purchase price, plus
• 1.0% on the amount exceeding $ 55,000 up to and including $250,000, plus
• 1.5% on the amount exceeding $250,000 up to and including $400,000, plus
• 2.0% on the amount over $400,000.(Be aware that for non-residential properties, such as industrial or commercial real estate, there is no 2% charge since the tax rate is 1.5% for any amount of purchase price over $250,000 regardless of the total price.)

Land transfer tax is normally based on the amount paid for the land, in addition to the amount remaining on any mortgage or debt assumed as part of the arrangement to buy the land.

In some cases, land transfer tax is based on the fair market value of the land, for example, where:

• the transfer of a lease with a remaining term that can exceed 50 years
• the transfer of land is from a corporation to one of its shareholders, or
• the transfer of land is to a corporation if shares of the corporation are issued.

City of Toronto Land Transfer Tax

On October 23, 2007, the City of Toronto approved a municipal Land Transfer Tax that will be levied in addition to the current Ontario Provincial Land Transfer Tax to be effective for closings on and after February 1, 2008.

The Toronto City Land Transfer Tax is as follows:

• 0.5% of the amount of the purchase price up to $55,000.00
• 0.5% of the amount of the purchase price up to $55,000.001.0% of the purchase price between $55,000.00 and $400,000.00
• 1.0% of the purchase price between $55,000.00 and $400,000.002.0% of the purchase price above $400,000.00 (for residential properties)
• 2.0% of the purchase price above $400,000.00 (for residential properties).

First-time homebuyers

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 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 homebuyers with homes of $227,500.00 or less will avoid the tax altogether.

Based on Toronto land transfer tax rates, first-time homebuyers 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 nine 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.

EXEMPTIONS:

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

• Transfers between spouses for natural love and affection (i.e. no money is paid) are exempt;
• 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
• 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 free because the beneficial owner has already paid the land transfer tax at the time of the trustee’s initial purchase of the property).

Where a construction contract is entered into as part of the arrangement relating to the purchase of a vacant lot or lots, the value of the consideration is calculated on the: total cost of the lot, plus

1. the total cost of the lot, plus cost of the construction contract,
2. the cost of the construction contract.

Value of consideration in foreign currency

All monies must be expressed in Canadian dollars. The land transfer tax statements must set out the value of the consideration in Canadian dollars. The date of currency conversion should be the:

date that the agreement of purchase and sale is accepted and becomes a binding contract, or
date of registration if there is no written agreement.

Paying the tax

Ontario’s land transfer tax is payable when the transfer is registered.

If the transfer is not registered within 30 days of closing, you must submit a Return on the Acquisition of a Beneficial Interest in Land from to the Ministry of Finance, along with the payment of tax within 30 days after the closing date.

Some person(s) do not pay land transfer tax on certain transfers of land. The exemptions include:

The exemptions include: certain transfers between spouses

• certain transfers between spouses
• certain transfers from an individual to his or her family business corporation
• certain transfers of farmed land between family members
• certain transfers of life lease from a non-profit organization or a charity.

A deferral of land transfer tax may be available when land is transferred between affiliated corporations, and notice of the transfer is not registered on title.

General anti-avoidance rule (GAAR)

Bill 14 Building Opportunity and Securing Our Future Act amended the Land Transfer Tax Act to set out a general anti-avoidance rule. This rule applies to transactions that are completed after May 1, 2014. It also applies to transactions that occurred on or before May 1, 2014, if they are part of a series of transactions that is completed after May 1, 2014.

Overpayment and refunds

If you overpaid land transfer tax, you could ask the Ministry of Finance for a refund. Here’s how:

Write a letter explaining the reason for your refund request and include:

• a copy of the registered conveyance
• evidence of the amount of tax paid on registration
• a copy of the agreement of purchase and sale (including all schedules and amendments)
• a copy of the statement of adjustments

Mail your letter to the Ministry of Finance, 33 King Street West, PO Box 625, Oshawa, Ontario, L1H 8H9.

Time limits

There is no time restriction where a refund is requested for land transfer tax paid on registration of a notice or caution where the transfer contemplated in the agreement referred to in the notice or caution did not take place.

First-time homebuyers refund requests must be made within 18 months after the date of the transfer.

All other refund requests must be made within four years after the date of payment of the tax.