A Land Transfer Tax: What Is It?

A charge levied on a property buyer during the purchase process is known as a land transfer tax. Before ownership may be transferred, the tax must be paid. Usually, it is computed using the purchase price of the property. Depending on the value and kind of property (residential or commercial), Ontario has different rates for this tax. In Ontario, these rates are uniformly applicable to both acquisitions and transfers of real estate; however, certain localities, including the city of Toronto, additionally impose municipal land transfer taxes.

Based on the value of the property, Ontario’s land transfer tax (LTT) is applied on a progressive basis. For example, the tax on a $500,000 property purchase would be calculated as follows:

• A 0.5% charge is applied to the first $55,000, resulting in an LTT of $275.
• A 1% rate is applied to the remaining $195,000 ($250,000 – $55,000), resulting in an extra $1,950 in LTT.
• A 1.5% rate is applied to the next $150,000 ($400,000 – $250,000), resulting in an extra $2,250 in LTT.
• There will be an extra LTT of $2,000 for the remaining amount over $400,000 (in this example, $100,000) due at a rate of 2%.

Therefore, $6,475 is the total land transfer tax that will be due for the acquisition of this property.

The Land Transfer Tax is not applicable to gifts per se

There is no exemption from land transfer tax for gifts of land under the Land Transfer Tax Act. On the other hand, no tax is due if there is no consideration given or received by the parties during a conveyance, either directly or indirectly, including no mortgage assumption. This is due to the fact that when the tax rate is applied to a “nil” value of consideration, there is no tax due.

This criterion is not applicable in situations where the Act finds that consideration has passed, such as in transfers of property from a company to its shareholders or leases longer than 50 years, in which case the fair market value of the land is considered to constitute the consideration.

A liability that is assumed is also considered consideration under the Land Transfer Tax Act. No matter who the parties are, tax is due on the amount owing at the time of registration if the property has outstanding encumbrances, which are usually mortgages or liens (with special exceptions for same-sex partners or spousal rollover under Regulation 696, R.R.O. 1990). Paragraph 4(b)(i) of the Affidavit of Residence and Value of the Consideration (LTT affidavit) must specify the total amount of any obligations undertaken.

When there is no exchange of value, the consideration will be represented as “nil” in paragraph 4 of the LTT affidavit.

Rebates as Well as Exemptions

Exemptions and refunds intended to lessen the financial effect of the land transfer tax are accessible for first-time homebuyers in Ontario. 100% of the taxes paid by buyers of properties valued at $368,000 or less are refundable. First-time homeowners also have the option to apply for an extra $4,000 in rebates, which can be used to pay for closing expenses like land transfer taxes and legal fees. Except in some cases when your spouse has previously held property, you must be a first-time homeowner and not have owned any previous homes anywhere in the entire world.

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In order to reduce the cost of land transfer taxes, Ontario’s agricultural landowners are also eligible to receive rebates and exemptions. Transferring farm property to a family member for agricultural purposes is entirely free under the Family Farm Transfer Exemption. A farmer may take use of this exemption once every generation.

PRO TAX TIPS: In the Event of an Outstanding Mortgage in a Gift Situation, Land Transfer Tax Will Still Apply

It’s crucial to take land transfer tax consequences into account when transferring property amongst family members. As long as there are no outstanding mortgages, presents between parents and children or between spouses may be exempt. Land transfer tax, which is determined by the property’s worth, must be paid for transfers that are made at fair market value or at reduced rates. As a result, it is strongly advised that a taxpayer verify if the land transfer tax is applicable as well as any potential refunds and exemptions by speaking with a knowledgeable Toronto tax lawyer.

FAQ: Frequently Ask Questions

Is a gift excluded from the land transfer tax?

Gifts of land are not excluded from land transfer tax under the terms of the Land Transfer Tax Act. On the other hand, the value of consideration is used to compute land transfer tax, and a gift devoid of mortgages is regarded as having no consideration. Thus, land transfer tax will not be triggered by a gift in the absence of a mortgage.

To whom may the land transfer tax apply exemptions?

In an effort to lessen the financial burden of the land transfer tax, Ontario offers exemptions and refunds to first-time homeowners as well as agricultural landowners.

You must not have previously owned any property in around the world in order to be eligible as a first-time homeowner, although there are special considerations if your spouse has.

Disclaimer:

All of the information contained in this article is general. It is only current as of the day it was posted. It might not be current as it has not been updated. It is not to be relied upon and does not provide legal advice. Each tax scenario is specific to its conditions and will not be the same as the examples given in the article. A professional Canadian tax a lawyer should be consulted if you have any special legal issues.