Congratulations, you made an offer to purchase a new home! Avoid the heart palpitations that will come when your lawyer advises you of the closing funds that they will need by way of certified funds by familiarizing yourself with land transfer tax now.
Ontario land transfer tax is a provincial tax that the purchaser pays upon completing the purchase of the property. If you buy property within the City of Toronto, you would also have to pay the municipal land transfer tax. Land transfer tax is calculated based upon the value of the property, using the scale below:
- 0.5% on the first $55,000.00 of the purchase price, plus;
- 1.0% on the amount exceeding $55,000.00 up to and including $250,000.00, plus;
- 1.5% on the amount exceeding $250,000.00 up to and including $400,000.00, plus;
- 2.0% on the amount over $400,000.00.
The land transfer tax would be slightly less on a new home purchased from a builder, because the tax would be calculated on the price net of Harmonized Sales Tax (HST).
Land transfer tax is not payable if you are transferring property between spouses, or common law partners residing together for 3 or more years. However, this tax is payable between parent and child, but the calculations are different. If the parent is gifting the property to the child, the tax payable would be based on the amount of the outstanding mortgage, and not the price at the time the parent purchased the property or the value of the property at the time of the transfer from the parent to the child. If the child is simply being added to the title but no transfer is taking place, then the tax payable is calculated on the proportionate share of the remaining mortgage. For example, if the child is a 50% owner, the tax is based on 50% of the outstanding mortgage.
Your lawyer will inform you what the closing funds consist of, and these will include the land transfer tax. Upon closing, the tax gets paid by your lawyer on your behalf, and you get the keys to your new home! For further information or assistance with a real estate matter, please contact Andrea Kelly Law.