Ontario Land Transfer Tax Commencing on December 16, 2017, new provincial land transfer tax statements are being incorporated into Teraview, Ontario’s electronic land registration system. Corresponding statements have been added to Ontario’s affidavits and forms.
When you buy land or an interest in land in Ontario, you pay Ontario’s land transfer tax. Land includes, but is not limited to, any buildings, buildings to be constructed, and fixtures (such as light fixtures, built in appliances and cabinetry). In addition, for certain transfers of land within the Greater Golden Horseshoe Region, a 15% Non Resident Speculation Tax (NRST) may apply.
Who pays the land transfer tax?
When you acquire land or a beneficial interest in land, you pay land transfer tax to the province when the transaction closes.
Land transfer tax is normally based on the amount paid for the land, in addition to the amount remaining on any mortgage or debt assumed as part of the arrangement to buy the land.
In some cases, land transfer tax is based on the fair market value of the land, such as in the following examples:
• the transfer of a lease with a remaining term that can exceed 50 years
• the transfer of land from a corporation to one of its shareholders, or
• the transfer of land to a corporation, if shares of the corporation are issued.
First time homebuyers
If you are a first time homebuyer, you may be eligible for a refund of all or part of the land transfer tax. When you buy land or an interest in land in Ontario, you pay land transfer tax. First-time homebuyers of an eligible home may be eligible for a refund of all or part of the tax.
To claim a refund, you must be at least 18 years of age, you cannot have owned a home or an interest in a home anywhere in the world, and your spouse cannot have owned a home or interest in a home, anywhere in the world while he or she was your spouse.
Previous ownership in a home means you do not qualify for the land transfer tax first-time homebuyers refund. The method of acquiring the home (e.g., purchase, gift or through an inheritance) is not relevant. You cannot re qualify as a first time homebuyer. This rule may be different from other federal programs for first time homebuyers (e.g., the Canada Revenue Agency Home Buyers’ Plan).
General Land transfer tax applies to all conveyances of land in Ontario. First time homebuyers may be eligible for a refund of all or part of the tax payable.
• For agreements of purchase and sale entered into before December 14, 2007, the refund only applies on the purchase of a newly constructed home. • For agreements of purchase and sale entered into after December 13, 2007, the refund applies to all homes, whether newly constructed or resale. Qualifying taxpayers may claim an immediate refund at time of registration. If the refund is claimed at the time of registration, it may offset the land transfer tax that would be payable. If the refund is not claimed at registration, the tax must be paid, and a claim for the refund may be submitted to the Ministry of Finance. No interest is paid on this refund.
Refund amounts and limitations
How much money could I receive?
For conveyances or dispositions that occur before January 1, 2017, the maximum amount of the refund is $2,000. Beginning January 1, 2017, the maximum amount of the refund is $4,000. The increased limit of $4,000 applies only to conveyances or dispositions that occur on or after January 1, 2017, regardless of the date the agreement of purchase and sale was signed. Beginning January 1, 2017, no land transfer tax would be payable by qualifying first time purchasers on the first $368,000 of the value of the consideration for eligible homes.
First time purchasers of homes greater than $368,000 would receive a maximum refund of $4,000. Limitation The refund will be reduced if one (or more) of the purchasers is not a first time homebuyer. The refund will be proportionate to the interest acquired by the individuals who qualify for the refund. Examples – Parent and Child Where a parent who is not a first time homebuyer, and a child who is a first time homebuyer, purchase a home with equal 50/50 interests, the child may claim a refund of 50% of the land transfer tax refund. The child’s claim cannot exceed 50% of the maximum allowable refund (i.e., 50% of $2,000 for conveyances or dispositions prior to January 1, 2017 or 50% of $4,000 for conveyances or dispositions on or after January 1, 2017).
In a situation where a parent is also on title to a child’s property, such as at the insistence of a bank, it will be necessary to pay land transfer tax at the time of registration and apply for a refund from the Ministry of Finance.
If the parent did not acquire a beneficial interest in the property as a result of the conveyance:
• the ministry will accept the fact that the parent was on title as a trustee for the child, and
• the child would qualify for the first time homebuyers refund, provided that all other eligibility requirements are met, and evidence of the trust is submitted (e.g., a letter from the bank confirming that the parent is on title for mortgage purposes or a copy of a trust agreement).
Example
Spouse A qualifying purchaser may also claim a refund in proportion to his or her spouse’s interest if that purchaser’s spouse has owned a home before becoming the purchaser’s spouse, but not while being that purchaser’s spouse. The ability of a purchaser to include his or her spouse’s interest in determining the maximum refund is restricted if the spouse is not a Canadian citizen or a permanent resident of Canada on the date of the conveyance or disposition.
My partner and I are buying a home together. I have owned a home, but he has not. If you are not spouses, then your partner may claim a refund based on his interest acquired in the home. If you are spouses, and both of you are Canadian citizens or permanent residents of Canada, your partner may claim a refund up to the maximum refund amount applicable to your transaction (you can claim the refund for your interest and your partner’s interest), as long as you did not own a home while you were each other’s spouse. If you did own the home while you were spouses of each other, then your partner does not qualify for a refund even if you did not live in the house together.
Requirements to qualify for the refund
To qualify for a refund:
• The purchaser must be at least 18 years old.
• The purchaser must occupy the home as their principal residence within nine months of the date of transfer.
• The purchaser cannot have ever owned an eligible home, or an interest in an eligible home, anywhere in the world, at any time.
• If the purchaser entered into an agreement of purchase and sale before December 14, 2007, the home must be a newly constructed home and the purchaser must be eligible for the Tarion New Home Warranty.
• If the purchaser has a spouse, the spouse cannot have owned an eligible home, or had any ownership interest in an eligible home, anywhere in the world, while he or she was the purchaser’s spouse. If this is the case, no refund is available to either spouse.
Calculating the Land Transfer Tax
The following rates of land transfer tax apply to all registrations and dispositions that occur prior to January 1, 2017.
Tax is calculated on the value of the consideration at the following rates:
• amounts up to and including $55,000: 0.5%
• amounts exceeding $55,000, up to and including $250,000: 1.0%
• amounts exceeding $250,000: 1.5%
• amounts exceeding $400,000, where the land contains one or two single family residences: 2.0%.
For transfers with agreements of purchase and sale that were entered into on or before November 14, 2016, the above rates will apply regardless of the date of registration or disposition. Electronic registration on or after January 1, 2017 Teraview, the software used to access Ontario’s electronic land registration system, will not be able to accommodate the transitional tax rates.
Effective January 1, 2017, all electronic registrations will be processed at the new tax brackets and tax rates.
Accordingly, anyone who has overpaid the land transfer tax may claim a refund of the portion of land transfer tax overpaid. In the alternative, transferees may pre-pay land transfer tax at the Ministry of Finance. Calculation example For a transfer of land or disposition of beneficial interest in land in which the value of the consideration equals $400,000: a. multiply $55,000 by 0.5% (55,000 × 0.005) = $275 b. multiply the amount exceeding $55,000 up to $250,000 by 1.0% (195,000 × 0.01) = $1,950 c. multiply the amount exceeding $250,000 up to $400,000 by 1.5% (150,000 × 0.015) = $2,250. Total land transfer tax payable = $4,475. F