If you are looking to buy a property in Ontario, it is crucial to understand the Land Transfer Act and how it impacts you as a buyer.

Ontario’s Land Transfer Tax (LTT) is a significant financial consideration for anyone purchasing a property in the province. The tax is imposed on the land transfer from one owner to another based on the property’s purchase price. For many homebuyers, the LTT can represent a substantial expense, and it’s important to understand how the tax is calculated and how it might impact your budget when buying a home in Ontario.

In this article, we’ll take a closer look at Ontario’s Land Transfer Tax, exploring how it works, the exemptions available, and offering tips on how to minimize the tax burden. 

Whether you’re a first-time homebuyer or a seasoned property investor, understanding the ins and outs of the LTT can help you make informed decisions when buying property in Ontario.

What Is The Land Transfer Act?

The Land Transfer Tax Act is a provincial law that governs the transfer of real property in Ontario. The act requires the payment of a tax on the transfer of land, which is calculated based on the value of the property being transferred. The tax is payable by the buyer at the time of the transfer and is collected by the province of Ontario.

The tax rate is based on a tiered system, with a lower rate for properties with a lower value and a higher rate for more expensive properties. The tax rate also varies depending on whether the buyer is a first-time homebuyer.

Acquiring a property in Ontario often involves incurring a provincial/municipal land transfer tax, an important consideration when purchasing.

Taxing property can be a greater burden on those with more expensive homes because it is calculated as a percent of the value.

The Land Transfer Tax Act provides certain exemptions and rebates, such as a rebate for first-time homebuyers, and exemptions for certain transfers, like transfers between spouses or transfers due to a court order.

Many people are unaware of this added cost when buying a home. Working with a knowledgeable real estate lawyer can help to prepare you for the land transfer tax and prevent you from being surprised by the cost and its impact on your finances.

Who Pays Land Transfer Tax?

Land transfer tax is paid by the buyer of the property and is based on the property’s purchase price. The tax is calculated as a percentage of the purchase price and varies based on the property’s location. Ontario has two types of land transfer tax: provincial and municipal.

The provincial land transfer tax rates are as follows:

  1. Properties valued up to $55,000 are subject to a land transfer tax of 0.5%.
  2. Properties valued between $55,000 and $250,000 are subject to a land transfer tax of 1.0%.
  3. Properties valued between $250,000 and $400,000 are subject to a land transfer tax of 1.5%.
  4. Properties valued between $400,000 and $2 million are subject to a land transfer tax of 2%.
  5. Properties over $2 million that contain one or two single-family residences are subject to a land transfer tax of 2.5%.

 

Toronto is the only city in Ontario with its own special land transfer tax and provincial tax. If you are living in or planning to purchase a property in Toronto, this is something you should take into consideration. 

First Time Homebuyers

A first time homebuyer couple happily displaying their new home keys

If you are a first-time homebuyer in Ontario, you may be eligible for a rebate on the land transfer tax. The maximum rebate is $4,000.

Separating Spouses

Spouses who have separated can be exempt from covering the costs of a home if one of them has complete ownership. The two parties can take advantage of a court-mandated agreement that exempts them from any monetary exchange. A common example is when one partner assumes responsibility for the current shared mortgage.

Inherited Property

Municipalities often have exemptions in place for property passed to family members. In certain locations, households with more dependents may be eligible for full or partial refunds. These exemptions are constantly changing and vary according to the individual circumstances.

How Does Land Transfer Tax Vary By Location in Ontario?

provincial and municipal land transfer tax graphic

There is a significant disparity in land transfer taxes among municipalities, with high-population areas having much higher fees than the rest of the province. 

When a real estate transaction occurs in Ontario, the provincial government receives a portion of the transaction through taxes. 

This applies to all land purchases. This covers various property types, from large-scale land areas to residential homes, commercial buildings, and more expansive spaces. When a purchase is categorized as a real estate transaction, the buyer typically shoulders the responsibility of paying land transfer tax.

While the purchase price is used to calculate the land transfer tax, it is not always accurate. In some cases, the calculation may instead use tax assessments. A few examples include:

  1. Transferring a lease with a remaining term of over 50 years.
  2. Transferring land from a corporation to one or multiple shareholders.
  3. Transferring land to a corporation while also issuing shares of the corporation.

How to Pay Land Transfer Tax in Ontario?

New owners must pay the land transfer tax in Ontario within 30 days of the transfer of ownership. Your lawyer will typically handle the payment on your behalf, but you must confirm this with them. 

Making payments on time is essential to avoid any penalties or interest charges. An experienced real estate lawyer can ensure that payment is made on time to prevent this from happening.

If paying online, you must use the Ontario Ministry of Finance’s online payment system. You will need to have the following information on hand:

  • The property’s address
  • The purchase price of the property
  • The type of property (e.g., residential, commercial)
  • The date of the transfer of ownership

Once you have this information, you can visit the Ministry of Finance’s website and follow the prompts to pay.

Alternatively, you can pay the land transfer tax by mail. To do this, you must complete the necessary forms and send them, along with your payment, to the Ontario Ministry of Finance. 

Key Takeaways

In summary, the Land Transfer Act in Ontario governs the transfer of land ownership from one party to another. Land transfer tax is paid by the buyer of the property and is calculated based on the property’s purchase price. 

The tax varies based on the property’s location, with some municipalities in the greater Toronto area applying a municipal land transfer tax in addition to the provincial tax. First-time homebuyers may be eligible for a rebate on the land transfer tax. 

The tax must be paid within 30 days of the transfer of ownership, and your lawyer or notary will typically handle the payment on your behalf.

With the help of a veteran real estate lawyer, you can make sure that all financial obligations and taxes are fulfilled and that no unexpected charges will be levied. 

At RBHF Professional Corporation, our knowledge of the latest tax regulations and closing costs can also help protect your finances from unforeseen liabilities. If you are considering a real estate transaction, contact our experienced and reliable Kingston real estate lawyers to ensure all your legal bases are covered.