Olivia Chow: Land transfer Tax Increase to Fund School Nutrition

With the mayoral race heating up in Toronto, and the candidates trying to convince voters that they are best for the job, Toronto mayoralty candidate Olivia Chow recently proclaimed that if elected, she will raise the city’s land transfer tax by one per cent to fund a school nutrition program. Types of Ownership

Now, before everyone in Toronto gasps, according to Ms. Chow, the proposed increase will only apply to transactions that exceed $2 million.  She added that Chow said the tax would apply to only a fraction of annual real-estate transactions in Toronto. Since September 2013, 473 homes and 56 condos sold for more than $2 million.  According to Chow, her plan will make the system “more progressive.” She said people paying more than $2 million for a home can afford an increase in the land transfer tax. Chow says the increase will raise about $20 million a year.

For those that aren’t familiar, click here for more information about Land Transfer Tax.  A quick refresher, Toronto’s Municipal Land Transfer Tax (MLTT) is paid by a purchaser of a home or business in the city. Toronto is the only municipality in Canada with a MLTT and it’s paid in addition to the provincial land transfer tax, which is slightly higher.

As it stands today, the purchaser of a house with a $2,000,000 sale price would pay $72,200 in land transfer taxes, specifically, $35,725.00 for the Toronto Land Transfer Tax and $36,475.00 for the Ontario Land Transfer Tax.  

EDIT:  Her plan is actually for a 1 percentage point hike, not just a 1 per cent hike — which is a substantial difference.

People buying a $2,000,000 home would pay 56 per cent more than they do now, $55,725 instead of $35,725. Which would bring the total Land Transfer Tax to $92,740.00 compared to the $72,200 they would currently be paying. 

My prediction is that if this (or something like it) were to pass, it would hurt the just over $2,000,000.00 (namely the $2-2.2 million) real estate market, as people in that market would likely try to only spend $1,999,999.00 to avoid the extra $20,000.00 in closing costs.  Or it would drive people out of the city into often larger, more luxurious homes for the same 2 million dollar plus price tag, but likely with more land and/or home. 

The Oct. 27 election is now less than two months away.  Some of you may recall my previous blog post regarding the possibility of eliminating or reducing the MLTT (click here). 

One thing is certain, this remains a hot button election issue.  Do you think Toronto should increase or decrease the municipal land transfer tax? Or, should they keep it the way it is?

Whatever your opinion on the issue, for those that live in Toronto, let your voice be heard, and vote on October 27th.

Toronto Real Estate – Resale Homes Jump another 10% in July

Toronto Real Estate – Average Price of Detached Home climbs to $880,433

Despite many market analysts saying that the sky is falling in Toronto’s real estate market – it showed no sign of slowing down in July.  As noted in the recent CBC article by Susan Pigg:

” Toronto’s hot real estate market showed no signs of slowing down in July, as the number of home resales surged 10 per cent from the same month a year earlier.”

According to the Toronto Real Estate Board  9,198 homes were bought and sold in the GTA in July, making it the second best July sales result on record.  

“Sales were up strongly for most major home types and market conditions actually tightened, with sales growth outpacing listings growth. The result was average price growth well above the rate of inflation,” said board president Paul Etherington

Toronto Real Estate Prices - Climbing

The average sales price was up 7.5 per cent to $550,700, with the biggest increase occurring in the average selling price of.detached houses.

  • Detached homes have  increased 11% year-over-year to an average of $880,433.  
  • Condominium prices in Toronto increased 4.7 %to $379,000. 

The MLS home price index, which measures the rate at which housing prices change over time by tracking price changes in “typical” homes, showed similar strength. In the Greater Toronto Area, the composite resale home changed hands for $513,400, up 7.9 per cent from a year earlier.   

What do you think — Is this a housing bubble about to pop, or just a new reality?  There are no easy answers, and certainly there are people who vehemently believe both sides of the coin. 

Who is a First Time Home Buyer – For Land Transfer Tax Refund Purposes

Who qualifies as a first a first time home buyer in order to qualify for the Land Transfer Tax refund?  Seems like a simple question.  However, the answer isn’t as simple as the question implies. 

What is Land Transfer Tax

The Provincial Land Transfer Tax applies to all transfers of land in Ontario.  If the transfer of land is in Toronto, there is an additional Municipal Land Transfer Tax. first time home buyer

In general, if you buy land or an interest in land in Ontario, you must pay  land transfer tax (provincial and possibly municipal), whether or not the transfer is registered at one of Ontario’s land registry office. 

Land includes any buildings, buildings to be constructed, and fixtures (such as light fixtures, built-in appliances and cabinetry).

The land transfer tax payable 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.

For more information about Land Transfer tax, and how it is calculated Click Here.

Who Qualifies for a Frist Time Home Buyers Credit? 

First-time homebuyers may be eligible for a refund of all or part of the tax. For transfers where:

  • the agreement of purchase and sale was entered into after December 13, 2007, the refund applies to all homes, whether newly constructed or resale.
  • the agreement of purchase and sale was entered into before December 14, 2007, the refund only applies on the purchase of a newly constructed home.

Applications for a refund must be made within 18 months after the date of the transfer.

To claim a refund, the requirements are as follows:

  • The purchaser cannot have previously owned a home, or had any ownership interest in a home, anywhere in the world, at any time.
  • If the purchaser has a spouse, the spouse cannot have owned a home, or had any ownership interest in a 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.
  • The purchaser must be at least 18 years of age.
  • The application for a refund must be made within 18 months after the date on which the conveyance or disposition occurred. (Note that an application for the refund can be completed upon the electronic registration of the conveyance).
  • The purchaser must occupy the home as his or her principal residence no later than nine months after the date of the conveyance or disposition.
  • The purchaser cannot have previously received an Ontario Home Ownership Savings Plan (OHOSP) based refund of land transfer tax.
  • If the agreement of purchase and sale is entered into before December 14, 2007, the home must be newly constructed.

First time home buyers or new and resale homes are eligible to receive refunds of the provincial and Toronto Land Transfer Taxes.

Am I a First Time Home Buyer?

Do I qualify for the First Time Home Buyers Refund?

There are several situations which have come across my desk where clients have been surprised that they did not qualify for the First Time Home Buyers Land Transfer Tax Refund.  I have accumulated some of the common questions/concerns below. 

1.  I am purchasing a property for the first time, but my parent has to be put on title at the insistence of the bank.  My parent is not a first time home buyer. 

In this situation, it will be necessary to pay land transfer tax at the time of registration and apply for a refund from the ministry.

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 newly constructed home refund, provided that evidence of the trust is submitted (e.g., a letter from the bank confirming that the parent is on title for mortgage purposes).

For example, where a parent who is not a first-time purchaser and a child who is a first-time purchaser, purchase a home with equal 50/50 interests, the child may claim a refund of 50% of the land transfer tax payable. The child’s claim cannot exceed 50% of the maximum allowable refund (i.e. 50% of $2,000).

2.      I inherited a property from an estate, but did not “purchase” the property.  Can I still claim the first time home buyers refund when I “purchase” my first home? 

To claim a refund, you cannot have owned a home, or an interest in a home, anywhere in the world. Previous ownership in a property means you do not qualify. The method of acquiring the property (e.g., purchase, gift or through an inheritance) is not considered.

3.      I am purchasing a property and I have never owned a home previously. However, my spouse has a property that he/she purchased prior to us becoming spouses. 

Your partner’s eligibility for a first time home buyers refund depends on whether you are “spouses” as defined in section 29 of the Family Law Act.

For land transfer tax purposes, “spouse” means either of two persons who are married to each other, or who are not married to each other and who have cohabited:

  • continuously for a period of not less than three years; or
  • in a relationship of some permanence, if they are the natural or adoptive parents of a child.

If you are not spouses according to the definition above, then your partner may claim a refund based on his/her interest acquired in the home.

If you are “spouses”, and the home was owned by one of the partners while you were spouses with each other (no matter how long ago or for how long), then you do not qualify for the first time home buyers refund, even if you did not live in the property together.   

For example if a husband owned a property prior to getting married, and sold it the day after he got married.  His wife has never owned interest in a property.  The wife would not be entitled to a first time home buyers refund.  (See Number 4 if the property was sold prior to becoming spouses). 

The situation does not change if title to the property is in one partner’s name alone. 

4.      I am purchasing a property, and I have never owned a property before.  My spouse owned a property prior to us becoming spouses, however he/she sold the property prior to us becoming spouses.   

In this circumstance, you are entitled to the first time home buyers refund, even though the first spouse is not a first-time homebuyer.  You can claim a refund up to the maximum, as long as the property was not owned  while you were each other’s “spouse.”

What this means is that if a husband who is a first time purchaser, and a wife who is not a first time home purchase a home, they can claim the  full land transfer tax refund if the home was sold prior to becoming spouses. 

It is important to remember that for land transfer tax purposes, “spouse” means either of two persons who are married to each other, or who are not married to each other and who have cohabited:

  • continuously for a period of not less than three years; or
  • in a relationship of some permanence, if they are the natural or adoptive parents of a child.

5.      I moved to Canada from another country.  I previously owned property in that country, however, sold it prior to coming to Canada. 

You would not be entitled to the refund.  A purchaser cannot have previously owned a home, or had any ownership interest in a home, anywhere in the world, at any time.

Contact Us to determine your eligibility for the land transfer tax first time home buyers refund.

Interim Occupancy Fees for Condominiums

What are Interim Occupancy Fees

When you purchase a pre-construction condominium from a developer, there is a period of time between when you take possession of the unit and when you take final ownership of the unit.  This is known as the “occupancy period” or “interim occupancy”.  During this period you will be requested by the developer to pay occupancy fees also known as “phantom rent”.

The Condominium Act requires condominium developments to be constructed to a substantial level prior to registration of the condominium plan. Title (or ownership) of a unit cannot be transferred until the condominium is registered.

You cannot own something that does not exit.  In Ontario, a real estate property does not exist until it is registered.  Thus, with newly built condominium apartments, there are two “closings”. The “interim closing”, which occurs at the time of occupancy and the “final closing”, which occurs at the time of final registration.

Once your unit is ready and livable, you take possession of it.  So you can live in it, but technically, you don’t own it.  Therefore, you have to pay the developer “phantom rent” to live in the unit. 

How much can I expect to pay?

The amount of the occupancy fee is roughly based on the following:

  1.  Interest on Unpaid Balance of Purchase Price – for example, if you purchased the condominium for $500,000, with a $100,000 down payment, you will pay a monthly occupancy fee that is roughly equal to the interest payments on $400,000;
  2. Estimate of Common Elements Fee – this amount may be adjusted at closing; and
  3. Estimate of Property Taxes (apportioned monthly).

How long will it last?

The duration of occupancy varies.  Typically, higher floor units can expect a shorter occupancy period.  There is no way to say exactly how long the occupancy period will last.   Condominium

The occupancy period ends when the building is registered, you get title to the property, and you start paying your mortgage. 

Hiring a real estate lawyer that will protect your rights is vital. Contact Us to ensure your rights are protected.


Purchasing a New Home From a Builder – HST Rebate

HST Rebates for Purchasers of Properties from a Builder

Everyone has heard of the old adage, there are two things that one can be certain of taxes and death. 

If you are purchasing a used or pre-occupied home, HST will not be applied.  However, if you are purchasing a newly constructed home from a builder, the price would be subject to HST. 

There are two circumstances where a purchase of a new home may be entitled to a rebate of the HST. HST rebate

HST New Housing Rebate

Typically, the New Housing Rebate is assigned to the builder when the deal closes. 

In order to qualify for the new housing rebate on a residential unit, it must have been purchased for use as a “primary place of residence of an individual or a qualifying relative”  

The New Housing Rebate allows Purchasers to recover some of the federal portion of the HST.  Which is currently 5% in Ontario. 

  • Homes with a base price (excluding HST or rebates) up to $350,000 – a purchaser can recover 36% of the 5% federal portion.
  • Homes with a base price (excluding HST or rebates) between $350,000 – 449,999 there is a sliding scale that the purchaser can recover.
  • Homes with a base price of $450,000 or higher, the federal portion of the New Housing Rebate is not available. 

With regards to the remaining 8% provincial of the HST, purchasers may recover 75% of the 8% provincial portion up to a maximum of $24,000 for properties up to $400,000.

New Residential Rental Property Rebate (“NRRP Rebate”)

Purchasers of newly constructed properties who intend to rent the property so that the first occupant of a home is a tenant are entitled to the New Residential Rental Property Rebate.   However, unlike the New Housing Rebate, purchasers cannot but cannot obtain the New Residential Rental Property Rebate from the builder. In this circumstance, purchasers in must apply for the Rebate directly after closing.

The application for the New Residential Rental Property Rebate must be filed within two (2) years after the house purchase closes.

It is important to note that Purchasers will have to repay the New Residential Rental Property Rebate if they should sell their home within one (1) year after it is first occupied as a primary place of residence after construction, unless the home is sold or leased to an individual who will occupy the home as their primary place of residence.

Why Condominium Owners Should Not Neglect Homeowners Insurance

Homeowners Insurance for Condominium Unit Owners:

Why You Need It

Mortgagors often do not require that condominium purchasers obtain household insurance. This leaves many condo purchasers under the impression that it is covered by their monthly common expenses and the condominium’s policy of insurance. However, often that is not the case. It is true, that the condominium corporation must carry insurance on the building, it does not cover everything, and there are often high deductibles involved even if the condominium policy pays for part of the loss.

Title Insurance In fact, a recent study conducted by Abacus Data, commissioned by Allstate Insurance, found that 61% of new condo buyers didn’t know that if a fire or leaky pipe from your unit damages another unit, you may be personally responsible for the damages, not the condominium’s insurance policy.

Although the specifics of each condominium corporation’s insurance will vary.  Usually it will cover common elements, but not the personal belongings of the owners.  In addition, it does not cover any improvements that have been made to your unit.  Upgrades can include hardwood floor, cabinetry, appliances, counters, or any other improvements. In addition, the condominium corporation’s insurance will not cover you if someone else’s unit or property is inadvertently damaged nor will it cover the damage if someone gets hurt while visiting your unit.

You may  be responsible for anything that occurs inside your unit, for example if you have a townhouse condominium, or are on the ground level, the condominium corporation insurance may not cover flooding or sewage backup.

However, you can purchase insurance to cover these liabilities.

Additional protection can be purchased when a special assessment is levied due to damage to common elements or lawsuits against the corporation.

A home is one of the most expensive investments you will ever make.  Make sure it is protected, and avoid unwanted surprises.

If a Building Permit is Not Closed – The Sale May not be Final

What does an Open Building Permit Mean for your Real Estate Transaction?

An open municipal building permit (where the city has not done a final inspection and closed the file) may be a serious title defect, and allow a purchaser to back out of a real estate transaction. 

Building Permit

A June of 2013 decision Ontario Superior Court of Canada, 1854822 Ontario Ltd. v. The Estate of Manuel Martins, 2013 ONSC 4310 highlights this issue.  In this case, 1854822 Ontario Ltd. signed an Agreement of Purchase and Sale to purchase a home from the Estate of Manuel Martins. 

Prior to closing the buyer’s lawyer discovered an open building permit for work on the property’s rundown garage. The buyer’s lawyer requested that the permit to be cleared by a city inspector prior to closing. The garage on the property had to be demolished and rebuilt at a cost of approximately $110,000.  The purchaser knew of  the condition of the garage when the agreement of purchase and sale was signed

The seller’s lawyer replied that an open building permit was not a valid title objection and said that although the permit was issued, no work was ever done and the permit did not force the buyer to perform any work.

The issue in this case was whether an open building permit, which has not been acted upon, affects title.  Justice Wilson held that an open building permit creates potential risk and exposure:

 “it is not clear that the permit can be closed quickly and easily; it is not clear what type of work needs to be done to satisfy the City that it is appropriate to close the permit; if demolition and construction is required, it is not clear what needs to be undertaken and its cost; and it is not clear whether the City will be satisfied by the work proposed or completed to make the changes or whether a work order will be issued.”

Further, Justice Wilson concluded that the open building permit creates a risk of litigation, and is not a minor defect, but rather it goes to the root of title and constitutes a valid objection to title, and the buyer is not obliged to close. 

Does an open building permit facilitate a potential “out” for buyers?

An open building permit does not have to signal the end of a deal as evidenced in the March 2013 decision in Thomas v. Carreno, 2013 ONSC 1495.  In this case, Ms. Thomas signed an agreement to purchase a house in Toronto from Ms. Carreno and Mr. Jennings.

Prior to closing, Thomas discovered that there was an open building permit for construction on the property that took place in 2007. Her lawyer wrote to the sellers’ lawyer requesting a final building inspection by the city of Toronto so that the outstanding permit file could be closed.

Acting under the terms of the purchase contract, the sellers’ lawyer arranged for a title insurance policy and a $100,000 holdback of funds to be used to repair any problems so that the deal could close.

While in this case, the deal did not close, the issue for the Court was whether the existence of the open building permit placed the sellers in default, and if so, did the fact they arranged title insurance for the buyer remedy that default?

In the end, the court ruled that the buyer was not entitled to kill the transaction once the seller had arranged for title insurance and a holdback of funds.

Hiring a real estate lawyer that will protect your rights is vital.  Contact Us to ensure your rights are protected. 

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