What Is Land Transfer Tax in Ontario
Published on 8 May 2023 in Blog byUnlocking the door to your dream home is an exciting feat. However, it’s crucial to be aware of all your closing costs, like the land transfer tax in Ontario. This sales tax can affect whether you can afford the house you’ve been eyeing. This guide reviews what you need to know about the land transfer tax and how to save money on it.
What is Land Transfer Tax in Ontario?Whenever a property sale is completed in Ontario, taxes are collected based on the sale price. The land transfer tax can add a considerable amount of money to the loan or closing costs, so you need to account for it when you’re budgeting for a home. If you’re selling your home, it’s also important to know that it’s generally expected that the buyer should pay this tax. In rare instances, sellers may offer to help pay this tax if they feel this would help complete the sale. However, you don’t need to feel as though this concession is required.
How is Land Transfer Tax in Ontario Calculated?The property’s value determines the land transfer tax on a property sale. The percentage paid depends on which bracket the property lands in. The brackets are as follows:
- 5% on $55,000 or less
- 1.0% on amounts from $55,001 to $250,000
- 1.5% on amounts from $250,001 to $400,000
- 2.0% on amounts from $400,001 to $2,000,000
- 2.5% on more than $2,000,000
Municipal Land Transfer TaxSome cities, such as Toronto, also tax property sales. When buying or selling a home, research whether your local municipality requires you to pay a land transfer tax and account for it accordingly. Keep in mind that in these cases, municipal taxes must be paid in addition to the Ontario Land Transfer Tax.
Can I Avoid Paying Land Transfer Tax?There are some circumstances that allow home buyers to avoid part or all of the land transfer tax. One of the advantages of being a first-time homebuyer is that, if you qualify, you won’t need to pay the tax on homes worth $368,000 or less. For any property worth more than this, you can defer up to $4,000 in land transfer taxes. If you’re transferring ownership of your home to your spouse, neither you or your spouse will be required to pay the land transfer tax. Here is some more important information about exemptions:
- If your spouse has ever owned a home during your marriage, you won’t qualify for the first-time buyer exemption.
- You must be a Canadian citizen or legal resident to qualify for an exemption.
- New homes need to qualify for home warranties.
- The exemption is given in the form of a rebate and you have up to 18 months after your sale is completed to apply for it.
- You must move into your home within nine months or forfeit your right to the rebate.