Purchasing a home is often one of the biggest decisions a person will make in his or her life. While it is certainly an exciting time in one’s life, it is often followed by a huge “gulp” knowing that it will be one of the biggest investments they will ever make.
Recently, I spoke with a client who had just signed off on the purchase of his first home. Naturally, he was very excited and had numerous questions regarding the process. After we discussed some of the various issues regarding purchasing a new home, including closing costs, he asked me if he would have to pay land transfer tax. My response, of course, was “it depends”.
Section 2 of the Land Transfer Act, R.S.O. 1990, c. L.6 (the “Act”) states that “every person” tendering for registration a conveyance by which ‘any land” is conveyed to or in trust for a transferee shall pay land transfer tax upon registration of the conveyance. Accordingly, unless an exemption applies, the Province of Ontario requires purchasers to pay land transfer tax on the registration of any Transfer/Deed.
The applicable amount of land transfer tax imposed can vary depending on the situation. However, the rates prescribed in the Act are as follows:
- 0.5% of the value of the consideration for the conveyance 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.
With respect to first-time home buyers, the Ministry of Finance states that they eligible for a refund of the land transfer tax if the following conditions are met:
- The purchaser(s) is/are at least 18 years of age;
- The purchaser occupies the home as their principal residence within nine (9) months of the date of transfer; and
- The purchaser has never previously owned a home, or an interest in a home, anywhere in the world.
In this case, the maximum amount of the refund is $2,000.
My client told me that had never been married and that he met the above requirements. He also told that he was purchasing the property for $225,000. I told him that based on the requirements of the Act, the land transfer tax generally applicable to his transaction would be $2,250 ($225,000 x 1%). However, because he was an eligible first-time buyer, he was entitled to the maximum refund of $2,000. Therefore, the actual land transfer tax payable would be $250.
If my client was a spouse under the Act, both he and his spouse would need to be first time buyers in order to qualify for the refund. The Act defines a “spouse” as: “people married to each other or unmarried people who have lived together continuously for a period of not less than 2 years or have been in a relationship of some permanence if they are the natural or adoptive parents of a child”. However, if my client’s spouse previously owned a home, or had an interest in a home anywhere in the world while she was my client’s spouse, neither party will qualify for the refund, despite my client’s eligibility.
Often times, new home owners are not aware of the various closing costs involved in purchasing a home. It is important that you speak with your lawyer to discuss such costs, including land transfer tax, before signing the Agreement of Purchase and Sale.
If you are buying north of Toronto, you will at least be pleased to know that you are not required to pay Toronto’s Land Transfer Tax in addition to the Province of Ontario’s tax.