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.

Should Toronto Eliminate the Municipal Land Transfer Tax?

Toronto Real Estate – Land Transfer Tax

The City collects revenue from property taxation. Toronto real estate Transactions with closing dates after February 1, 2008 were charged a Municipal Land Transfer Tax (MLTT).

According to a recent article by Susan Pigg at the Toronto Star, a Report commissioned by the Ontario Real Estate Association claims that municipal home and sales levy has led to a 2.3 Billion dollar drop in economic activity and repealing it would create 12,000 new jobs in the next 5 years.  

“It’s bad for our economy and bad for homebuyers,” says Costa Poulopoulos, president of the Ontario Real Estate Association.  (Who, for full disclosure’s sake, commissioned the report.)

Toronto Real Estate land transfer tax

According to the Study,  Toronto has seen an estimated decline of more than 38,000 home transactions since the tax was imposed in 2008, making home ownership more expensive and Toronto the only city in Canada where homebuyers are double-taxed: they have to pay both a municipal and a provincial land transfer tax on the purchase of a home.

Furhter, the report states that the loss of sales has translated into a roughly $2.3-billion drop in economic activity in Toronto since 2008, and a $1.2-billion reduction in GDP. There would be nearly 15,000 more jobs in sectors from real estate to law to furniture and appliances stores without the Toronto-only land transfer tax.

The economic analysis was done by Altus Group Economic Consulting.  The study relied heavily on two previous studies: a 2012 C.D. Howe Institute report that estimated the impact of the tax on housing transactions, as well as a 2013 study for the Canadian Real Estate Association that examined the economic impact of a typical house transaction in Ontario.

Altus researchers then took those reports one step further, looking back and also ahead at the economic fallout of the tax.

The study went on to note that the economic damage is much bigger than the gain for the city, the average revenue the municipal land transfer tax generated each year since 2008 has been $270.2 million.

The annual take now is about $350 million a year, thanks largely to soaring house prices. That’s close to double the amount collected in 2008.

Toronto Mayor Rob Ford had long vowed to eliminate the municipal land transfer tax.  However, when faced with strong resistance to getting rid of the revenue stream for the city, he talked about reducing it by 5 or 10 per cent instead. He has yet to follow through with either eliminating or reducing the Toronto Land Transfer Tax.  A recent Toronto Star Article suggested that it should be made an election issue for the upcoming mayoral election.  

Land transfer taxes now add up to more than $14,000 in upfront costs on a $550,000 home purchase in Toronto — about $7,500 of that being the provincial tax and $6,700 the city tax.

“This research proves that the (municipal tax) is doing more harm than good where our economy is concerned,” said Poulopoulos. “It gets in the way of the economic spinoff that occurs when homes are purchased and sold.”
The real estate umbrella group commissioned the study, hoping to make repealing the tax both a municipal and a provincial election concern, and to get out front of the issue before any other Ontario municipalities, such as Missississauga, move to implement their own version of the tax.  The study is being released along with a new Ipsos Reid survey that found 85% of Toronto residents think the tax makes it harder to become homeowners, and 72% said the upfront costs would come at the expense of spending on other economic generators, such as renovations, furniture or new appliances for their new home.

Will Toronto Eliminate the Municipal Land Transfer Tax?

At the end of the day, whether it be repealed or decreased will likely be a decision of the new mayor of Toronto.  It will be interesting as the mayoral race progressing to see where they all stand on the issue.

Will it happen?  Who knows.  We were already promised by the current mayor that the tax would be eliminated.

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.

Ontario Real Estate Closing Costs

Closing Costs 

What Will I have to Pay When Closing a Real Estate Transaction

Many of my clients are surprised when they find out just how many additional closing costs there are when purchasing a home.  It’s important to plan ahead and budget for these costs prior to signing the Agreement of Purchase and Sale.

According to the Canadian Mortgage and Housing Corporation, closing costs range from 1.5-4% of the selling price of your home.  This includes the legal and administrative costs you will need to pay when your house closes.

In addition to the agreed upon purchase price, there are additional legal and administrative costs that will have to be paid on the closing of your real estate transaction.

The following is a list of closing costs that are may be incurred when purchasing real estate in Ontario:

  1. Title Insurance –  While it is optional, today, many lenders require title insurance to protect against losses in the event of an ownership dispute.  This is purchased through your lawyer, and costs approximately $150-325 for homes up to $500,000.
  2. Land Transfer Tax –  This is calculated as a percentage of the purchase price of your home, and is payable on closing.  If your property is located in Toronto, Ontario, there is an additional municipal land transfer tax.
  3. Adjustments – You will be required to reimburse the seller of the property for any pre-paid property taxes or utility bills.
  4. Home Insurance – For the protection of your home and contents.
  5. Legal Fees and Disbursements – At Frost Law, we provide a flat fee (legal fees and disbursements) to prepare the legal documentation, with no hidden fees.  This way, you know exactly to expect.  Click Here to obtain a quote, or call us at (905) 224-2077 for a free initial consultation.

Contact your local real estate legal professional at Frost Law, Professional Corporation to discuss what closing costs you can expect for you real estate transaction. 

 

Land Transfer Tax

Land Transfer TaxWhat is Land Transfer Tax

The Ontario Land Transfer Tax is tax is paid by the Purchaser at the date of final closing as part of your closing costs. The purchaser’s solicitor pays the Tax on behalf of the purchaser on the closing date. The purchaser will be required to provide their solicitor closing funds (certified) that will cover the closing expenses. This Tax is not covered through your mortgage.

The Toronto Land Transfer Tax applies when you purchase a home within the city limits of Toronto, Ontario. You should note that if the property is within the Toronto city limits then both the Provincial and Municipal tax is applicable and is also part of your closing costs.

Rates for a single-family residence in Ontario are as follows:

 

$0 – $55,000.00 ½ of 1%
$55,000.00 – $250,000.00 1%
$250,000.00 – $400,000.00 1 ½%
Over $400,000.00 2%

 

Rates for a single-family residence in Toronto (in addition to the Ontario rates) are as follows:

 

$0 – $55,000.00 0.5%
$55,000.00 – $400,000.00 1%
Over $400,000.00 2%

 

Feel Free to calculate the Land Transfer Tax for your property with the calculator below.

 

Note:  If you are buying new, from the builder, the Tax is calculated on a price which is the net of HST, and will be slightly less for a new home than for a resale home with the same price.

What are the Exemptions from Land Transfer Tax? 

Exemptions are limited. They include:

  • certain transfers between spouses
  • certain transfers from an individual to their family business corporation
  • certain transfers of farmed land between family members
  • certain transfers of a life lease from a non-profit organization or a charity.

First time Home Buyers may be eligible for a Land Transfer Tax Refund.  Click Here for more information about whether you qualify. 

Contact your local real estate legal professional at Frost Law, Professional Corporation to discuss whether you may be eligible for the First Time Home Buyer’s Rebate. 

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