Everything You Need to Know About the Land Transfer Tax
There are many fees associated with buying a property: realtor commissions, movers, new furniture, utility costs, etc.
Another fee which often flies under the radar is the Land Transfer Tax. Unfortunately, many homebuyers aren’t all that familiar with it. Here’s a quick run-through to help you familiarize yourself with the (much-maligned) Land Transfer Tax.
What is the Land Transfer Tax?
The Land Transfer Tax was introduced in most Canadian provinces during the 1970s (in Ontario and Quebec) and 1980s (B.C.). It was a source of revenue for municipalities, who are forbidden from taxing such things as income, sales, etc.
It is paid to the province (or the municipality, in some instances) by the buyer of a property; sellers never pay this tax.
In some provinces, first-time homebuyers are eligible for a refund of all or part of the Land Transfer Tax.
Certain metropolitan areas will have a higher Land Transfer Tax. Homebuyers in Toronto, for example, will pay double what their counterparts in Ottawa pay.
How Much Will It Cost Me?
The Land Transfer Tax rate varies from one province to another. It is usually calculated based on the sale price of the land and property. In certain cases, it can be based on the fair market value of the land. As a rule of thumb, you should budget 1-1.5% of your property value for Land Transfer Tax. Remember that this amount cannot be added to your mortgage payment. It needs to be paid in full following the transaction.
If you were to purchase a property valued at $300,000 in Ottawa, Ontario, for example, you are going to pay a Land Transfer Tax of approximately $2,975. A first time home buyer in Ontario however, is exempt from up $4,000 on their land transfer tax so they would be charged $0.00 upon possession. In Montreal, the same property will set you back $3,000. In Vancouver, BC, you’re looking at a $4,000 Land Transfer Tax.
Most provinces and municipalities have a Land Transfer Tax calculator widget on their website. Log onto the appropriate website and type in the purchase price of your property to find out the exact amount you will have to pay.
When Do I Have to Pay the Land Transfer Tax?
In most cases, the Land Transfer Tax is to be paid as soon as you take possession of the property. Your lawyer will arrange for the payment to be made when the deed is transferred in your name, on closing day.
Note that the Land Transfer Tax is a one-time payment. You will only pay it once, unlike property taxes which are paid annually.
Can I Be Exempted From Paying the Land Transfer Tax?
In some specific cases, a homebuyer can be exempted from paying the Land Transfer Tax.
In Ontario, if you transfer property to a spouse during separation proceedings, you don’t have to pay Land Transfer Tax provided the transfer meets one of the three following conditions:
- the transfer is mandated by a court order;
- both parties have agreed to the transfer in writing; and
- the land is given without consideration in return, except for an encumbrance (meaning your spouse can’t pay you for the property, but can take over the mortgage).
If land is transferred to a lineal descendant, such as a father, mother, brother or sister, certain cities will exempt the buyer from having to pay the Land Transfer Tax. This is the case in the province of Quebec.
Some cities also offer subsidies when purchasing a condo, for example. It is wise to check with the municipal administration where you’re thinking of purchasing a property to find out if you qualify for a tax exemption. The city of Montreal, for example, in an effort to keep families from leaving for the suburbs, has set up a program through which buyers of a residential property who have at least one child under 18 or a child who will be born or adopted no later than 9 months after the property is purchased are eligible for a full refund of the Land Transfer Tax. .
The Land Transfer Tax is NOT a Sales Tax
Keep in mind that the Land Transfer Tax is not the same as the sales tax on a new build, for example. If you buy a brand new property, both taxes must be paid.
In short, you, like most homebuyers, can expect to pay the Land Transfer Tax when closing your transaction. There’s nothing for you to do: your lawyer will add it to the closing costs.
Otherwise, you will receive an invoice through the mail, usually within the first month following the closing date. The Land Transfer Tax is typically payable immediately upon reception of the invoice, and can not be paid in installments. That being said, don’t forget to plan for this additional expense when shopping for a property.
Talk to your Nesto Mortgage Advisor to find out what the Land Transfer Tax will be on the property you are interested in.