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Purchasing a Property: Don’t let the Land Transfer Tax surprise you

 Jul 18, 2017 1:45 PM

When buying a home, there are many costs that you may not be aware. Today, let’s explore the steepest upfront cost you face when purchasing a property, specifically the land transfer tax.

What is the land transfer tax (LTT)?

Like any tax, it’s important revenue to the province or municipality. It’s not going away! The land transfer tax is charged to you by the province you purchase your property in. Toronto is the only municipality that charges an additional tax in Ontario. The tax is charged when the deed of the property passes from the seller to the purchaser. The tax is cannot be included in the mortgage amount, be ready to include this expense in your budget planning!

The tax is charged at the time the deed is transferred (the purchase date). The tax is charged to the purchaser. In the city of Toronto, you are charged by the city and the province. As a first-time home buyer, you are entitled to rebates on both the municipal and provincial level.

How is it calculated?

The tax is calculated on a sliding/graduated scale. The higher the value of the property invariably the higher rate of tax you must pay. For example, on the Ontario LTT, you are charged 0.5% for the first $55,000. Any amount greater than this but less than $250,000 is charged at 1.0%, etc. (Refer to chart 1 and chart 2 below for the rates as of today)

Chart 1: ONTARIO LTT Sliding Scale

Purchase Price

Rate %

1st Time Home Buyer Rebate

$0 - $55,000

0.5%

Full Rebate

$55,001 - $250,000

1.0%

Full Rebate

$250,001 - $368,250

1.5%

Full Rebate

$368,251 - $400,000

1.5%

$4,000

$400,001 - $2,000,000

2.0%

$4,000

$2,000,000 & Greater

2.5%

$4,000

 

Chart 2: TORONTO LTT Sliding Scale

Purchase Price

Rate %

1st Time Home Buyer Rebate

$0 - $55,000

0.5%

Full Rebate

$55,001 - $400,000

1.0%

Full Rebate

$400,000 & Greater

2.0%

$3,725

First time home buyers, are eligible for rebates. There are rules associated with the first-time home buyer program that you should familiarize yourself with.

  • The purchaser must be at least 18 years old.
  • The purchaser must occupy the home as their principal residence within nine months of the transfer of deed.
  • The purchaser cannot have ever owned an eligible home, or an interest in an eligible home anywhere in the world.
  • If you are purchasing a house with someone who has already purchased a home in the past they are not eligible for the rebate. For example, if you purchase your home equally with a parent who has purchased a home in the past you are only eligible for 50% of the rebate.
  • For non-Canadian citizens or non-permanent residents of Canada they have 18 months following registration to become eligible.
  • You can always visit the Ontario Government for additional details http://www.fin.gov.on.ca/en/bulletins/ltt/1_2008.html

Again, when it comes time to budget the land transfer tax, take into consideration that it cannot be included in the mortgage and must be from your own sources. It’s important when planning your down payment and closing costs that you are able to close on the day of purchase. Working with a mortgage professional will always be your best bet to make you are prepared.

Prior to house hunting it is a great time to get your pre-approved mortgage. This gives you an idea of what you can afford and plan expected costs. If you are approved for a mortgage up to $500,000 you know that as a first-time home buyer that you will be eligible rebate of $7,725 both provincially and municipally.

Bottom Line

Remember the key to buying your home and reducing stress is to reduce the unknown. Work with a mortgage professional to secure a pre-approval, we can answer all your questions. It is important that we are there to help you understand your down payment and closing costs.

Of course, if you have any questions we are always here to help.

About the Author:

Daniel Daffern is an independent mortgage agent at TMG The Mortgage Group. Daniel graduated from the University of Toronto with Honours Bachelor of Arts, with RISR and BCO certification. Daniel began working as a lender in 2007 and has been working at brokerage or major bank since. If you are a first-time home buyer, renewing or refinancing your home or look for an investment lending please contact Daniel or Ian Mucignat directly for a free consultation.

Mortgage Basics, First Time buyers  


  


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