Toronto imposes new Land Transfer Tax - What does this means to home buyers?

- After much debate for months and months, here is the new Toronto Land Transfer Tax that was just passed by Council on 22 October 2007 and takes effect on 1 February 2008. Transactions entered into prior to the end of the year will be fully exempt whenever they close. For the first two months of the year, the deals must close before February 1st 2008. After that, the full tax applies.

The new tax is an addition to the existing land transfer tax. The extra tax is payable on residential and commercial property purchases, including vacant land.

So how will this affect the real estate market in Toronto an surrounding areas?



EXISTING Ontario Land Transfer Tax:

Land transfer taxes are levied on properties that are changing hands, are the responsibility of the purchaser. Current tax rates (effective from June 1, 1989)

0.5% of the value of consideration for the transfer up to and including $55,000,
1% of the value of the consideration which exceeds $55,000 up to and including $250,000, and
1.5% of the value of the consideration which exceeds $250,000, and
2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.
ADDITIONAL NEW Land Transfer Tax :

New tax rates (on purchase agreements signed after Dec 31, 2007 and close after Feb 1, 2008).

0.5% on first $55,000,
1% on next $345,000, and
2% on portion over $400,000


Examples of new Land Transfer Tax ($)

Home Price Ontario LTT Toronto LTT Total LTT
250,000 2,225 2,225 4,450
350,000 3,725 3,225 6,950
450,000 5,475 4,725 10,200
500,000 6,475 5,725 12,200


For first time purchasers:

A rebate of up to $3,725 will apply to first-time purchasers of both new and existing homes. This means a full rebate for first-time buyers of homes valued at $400,000 or less. For example, a first-time purchaser of a home valued at $600,000 would pay land transfer tax according to the scale shown above, and receive a rebate of $3,725. A first time home buyer of a home valued at $300,000 would get a full rebate on the land transfer tax.


Why Toronto imposed new land transfer tax?

City of Toronto’s projected revenue shortfall for 2008 budget is approximately $415 million. The city will be able to raise additional $155 million by Land Transfer tax and another $20 million by the new Toronto Vehicle ownership tax. That means a revenue shortfall of perhaps $239 million for next year’s budget. This may translate into new taxes on property, alcohol, road tolls, entertainment, parking, billboards, etc.

Toronto is the ONLY jurisdiction with two home buying taxes, highest land transfer taxes in Canada and the second highest in North America.

What may happen now?

A second land transfer tax (LTT) on top of current provincial LTT, is almost 100% increase which might slow down real estate activity for short period of time only.

Home buyers will have less money for down payment, furniture, appliances or renovations. This could ultimately cost over $15,000 for an average buyer when coupled with other real estate closing costs and goods that follow home’s purchase. First-time buyers will not get affected as they will NOT pay the City’s new land transfer tax on first $400,000 of their property’s price.

Since there is no new local home buying tax in 905 region, more buyers and investors will move out of Toronto. Real estate markets outside Toronto will grow more as many investors and buyers will move into Mississauga, Oakville, Milton, Brampton, Markham, Richmond Hill, Ajax and Pickering.


Borrowed fromt he Canadian Real Estate newsletter www.newsportrealtor.com