Understanding Land Transfer Tax When Buying a Home
Written by Penelope Graham
Monday, November 19th, 2018
You've scrimped for a down payment, had your offer accepted and even booked the moving truck – the finish line to close your home purchase is in sight, but there's still a few more expenses you'll need to shell out for before the keys are in your hand.
Often overlooked by homebuyers, closing costs can come as a nasty financial surprise. These costs include a multitude of things, such as lawyer fees, HST on new homes (in applicable provinces), and even unexpected moving or repair costs. For homeowners in many markets, it also means ponying up for land transfer tax.
What is Land Transfer Tax?
Land transfer tax (LTT) is typically paid by homebuyers to the province upon the closing of a land purchase. It's a cost that must be paid in cash – unlike costs such as mortgage default insurance premiums, it can't be rolled into, and amortized over, the course of a mortgage.
Each province has some form of LTT, but this is where the similarities end – while some calculate it as a percentage of the home's total value, others charge a flat fee. This creates wide differences between the amounts of LTT paid by homebuyers across the country.
Each Province is Different
Buyers of real estate in Canada's priciest markets, such as Toronto and Vancouver, pay tens of thousands of dollars more in LTT than those in neighbouring provinces. In comparison, those buying in Saskatoon or Calgary pay based on a nominal "title transfer fee" structure in Saskatchewan and Alberta.
The good news is if you're a first-time homebuyer, you may also qualify for a hefty rebate to take most of the sting out of LTT costs.
To find out how this closing cost differs across markets, Zoocasa compared the land transfer tax structure, any applicable first-time buyer rebates and average home prices in 25 major Canadian cities. Check out how they differ here.
The Top 3 Most Heavily Taxed Markets for LTT
1. Vancouver, BC
It seems that beleaguered Vancouver real estate buyers can't catch a break: contending with the highest average home price of $1,103,803 translates to $20,076 in LTT, which accounts for 1.8 per cent of the total home purchase price. The provincial property transfer tax structure is calculated on the following sliding scale:
$0 – $200,000 = 1%
$200,001 – $2,000,000 = 2%
$2,000,001 – $3,000,000 = 3%
+$3,000,000 = 2%
2. Toronto, ON
Those purchasing a home within the city of Toronto are actually taxed twice, paying LTT at both the provincial and municipal level. Based on the average Toronto home price of $805,320, a buyer would need to pay $25,162 in LTT, accounting for 3.1 per cent of their home purchase price.
However, first-time purchasers in the city do receive relief in the form of rebates, receiving $4,000 from the province and $4,475 from the City of Toronto. Properties priced below $368,000 are also exempt from provincial LTT altogether for first-timers. With these rebates factored in, the LTT bill comes to $16,687, or 2.1 per cent of the total purchase price.
The Ontario LTT tax structure breaks down this way:
$0 – $368,333: Full tax rebate for first-time homebuyers (0.5% for repeat buyers)
$368,334 – $400,000: 1.5%
$400,000 – $2,000,000: 2%
$2,000,000 +: 2.5%
The City of Toronto mirrors this tax structure with the exception of the range between $250,000 – $400,000, in which 1.5% is charged.
3. Victoria, BC
Victoria has experienced rampant price growth, with the average home value now clocking in at $713,485. That equals $12,270 in tax paid by homebuyers, accounting for 1.7 per cent of the home's total price. Since there's no rebate for first-time buyers in British Columbia, this tax will be absorbed by first-time and repeat buyers alike.
The Bottom Line: Plan Ahead for LTT
Because LTT can't be included in the mortgage, it's important for buyers purchasing in the most affected markets to factor in this cost from the beginning when establishing a home buying budget. It's a great idea to connect with a mortgage professional or financial advisor to determine how much to set aside for LTT. That will help ensure your home buying nest egg doesn't come with a nasty financial shock.
This article or video (the “Content”), as applicable, is provided by independent third parties that are not affiliated with Tangerine Bank or any of its affiliates. Tangerine Bank and its affiliates neither endorse or approve nor are liable for any third party Content, or investment or financial loss arising from any use of such Content....
The Content is provided for general information and educational purposes only, is not intended to be relied upon as, or provide, personal financial, tax or investment advice and does not take into account the specific objectives, personal, financial, legal or tax situation, or particular circumstances and needs of any specific person. No information contained in the Content constitutes, or should be construed as, a recommendation, offer or solicitation by Tangerine to buy, hold or sell any security, financial product or instrument discussed therein or to follow any particular investment or financial strategy. In making your financial and investment decisions, you will consult with and rely upon your own advisors and will seek your own professional advice regarding the appropriateness of implementing strategies before taking action. Any information, data, opinions, views, advice, recommendations or other content provided by any third party are solely those of such third party and not of Tangerine Bank or its affiliates, and Tangerine Bank and its affiliates accept no liability in respect thereof and do not guarantee the accuracy or reliability of any information in the third party Content. Any information contained in the Content, including information related to interest rates, market conditions, tax rules, and other investment factors, is subject to change without notice, and neither Tangerine Bank nor its affiliates are responsible for updating this information.
Tangerine Investment Funds are managed by Tangerine Investment Management Inc. and are only available by opening an Investment Fund Account with Tangerine Investment Funds Limited. These firms are wholly owned subsidiaries of Tangerine Bank. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.