When buying or selling a home, it’s easy to get caught up in the details of the transaction and the anticipation and stresses of relocating. You have so much to juggle all at once. You must ensure every i is dotted and t is crossed so that the close happens seamlessly. However, in all the excitement, you must remember all the closing costs associated with the transaction. Real estate transactions already involve high dollar amounts. And after everything is said and done, you can expect to add another 3-5% of the value in lawyer’s fees, commissions, and other closing expenses. Of all of the closing costs you can expect, land transfer taxes can be the most burdensome.
What Are Land Transfer Taxes?
Whenever the title of a property changes hands, the Ontario government charges a transfer tax to the new owner. Unlike property taxes that are due yearly, you pay land transfer fees only once.
In addition to the provincial tax, the City of Toronto charges its own fee. Since these taxes are based on the purchase price, they can add up very quickly.
Is it time to get creative with your search for a new home? Here are some ideas to get you started:
- Should You Buy a Tear-Down House in Etobicoke?
- Finding Your Diamond in the Rough: A Guide to Full Renovations in Etobicoke
- Buying a Home in Etobicoke During a Shifting Market
How Are Land Transfer Taxes Calculated?
Usually, the land transfer tax depends on the purchase price. However, in some cases, it is calculated based on fair market value. The amount is variable depending on the cost of the house, but the provincial land transfer tax can be as high as 2.5%.
- On a property valued between $55,000 and $250,000, the transfer tax works out to 1%.
- Between $250,000 to $400,000, the tax increases to 1.5%.
- On any property between $400,000 and $2 million, the provincial tax jumps to 2%.
- A property that exceeds $2 million is subject to a 2.5% land transfer tax.
Since you’re unlikely to find a home in Toronto for less than $400,000, it’s safe to assume your tax rate will be 2% or 2.5%. In other words, if you purchase a $700,000 condo, you’ll be looking at an extra $14,000 upon your closing date.
The Toronto Land Transfer Tax
Houses in Toronto are among the most expensive in the country. In addition to the purchase price and the provincial fee, Toronto has a land transfer tax of its own for residential properties. While you will want to defer to your lawyer to determine the exact amount, you should brace yourself for double the cost.
Who Pays the Land Transfer Tax?
Upon closing, the seller pays the real estate commissions, mortgage penalties, lawyer fees, and capital gains taxes, if applicable. However, land transfer taxes are the buyer’s responsibility.
And it isn’t just the amount of taxes that make it challenging. Nearly every other cost can be rolled into the mortgage and paid in small increments over time. However, you must pay the land transfer taxes upfront once the transaction closes.
Once you’ve found the right house, the next step is to decorate and make it truly your own. Here are some tips that may help:
- Lighting Techniques That Give Your Home a Facelift
- Redesign Your Home With One Trip to Your Local Hardware Store
- 6 Design Trends That Are Making a Comeback in 2022
Good News For First-Time Buyers
On your first home purchase, you will have some relief through several government programs designed to assist you. In addition to the First-Time Home Buyer’s Incentive and the Home Buyer’s Plan, there is the provincial and municipal Land Transfer Tax Rebate.
To qualify, you must meet the following criteria:
- You must be at least 18 years old and a Canadian citizen or permanent resident.
- You cannot have owned a home or an interest in a home anywhere in the world.
- The home must be your primary residence within nine months of your purchase.
- If you have a spouse, neither one of you can have owned a home or have had an interest in a home while being the purchaser’s spouse.
The provincial rebate allows you to save as much as $4,000 on the land transfer tax, and the municipal rebate offers savings of up to $4,475. Between the two programs, you can save up to $8,475 when purchasing in Toronto. Since the tax must be paid upfront, this rebate greatly reduces the burden when buying a home for the first time.
First-time buyers can also qualify for the First Time Buyer’s Tax Credit, which can result in a $1,500 reduction in income tax in the year the home is purchased. It may not seem like much, but all of these programs combined can make the purchase of your first home far more accessible.
Do you have questions about buying or selling a home in Toronto? We specialize in the Central and West End and are happy to give you any direction you may need. Reach out to us at ana@asantos.ca or call 647-232-7317 to start a conversation.