08 Aug 2016

Who Pays Land Transfer Tax in Ontario?

In response to the question of who pays land transfer tax in Ontario, it’s important to remember that land transfer tax is paid to the province upon the closing of a property or land acquisition transaction.

This tax is applicable to any land, buildings, future constructions, and fixtures on a property. Normally, this tax is on a scale based on the value of the property including the remaining mortgage or debt on the land that is assumed by the buyer as part of the transaction.

Consider the following example of tax rates for a single-family home:

Property Value: Tax Rate:
$0 – $55,000 .5%
$55,000 – $250,000 1.0%
$250,000 – $400,000 1.5%
$400,000+ 2.0%
*Rates are subject to change, applies to Canadian residents and non-residents

 

In some special circumstances, such as when the land is transferred from a corporation to a shareholder of said corporation, or to a corporation in exchange for shares from an individual, the tax is based on the fair market value of the property.

Also, there may be a deferment of payment on land transferred from a corporation to an affiliated corporation if there is no notice of transfer on the registered title.

Certain further exemptions to paying the land transfer tax include spousal transfers, an individual transferring property to their family business corporation, farmed land being transferred between family members, and life-lease transfers from a charity or other non-profit organization. There are specific criteria for each these exemptions.

Transfers between spouses are not always exempt from the land transfer tax. In order to qualify for exemption the only consideration given on the land is the assumption of encumbrance, such as a mortgage, or if the transfer is part of a separation where the parties will live apart, or if a court order has been issued and the transfer is in compliance with this court order.

Also, if a spouse were paying the other for their interest in the land outside of any mortgage, this would not fit the description and would require payment of the land transfer tax. Spouses could mean two people who are married, or have cohabited continuously for three or more years, or, in other cases, those have some form of permanence in their relationship, such as being adoptive parents children.

First time home-buyers may be able to get a refund up to $2,000 on a portion of the land transfer tax based on the cost of the home they are purchasing, if it is to be used as a primary residence.

This generous refund may be claimed at registration, and may cover the ordinarily payable land transfer tax. The Ministry of Finance may issue the refund directly within 18 months of closing, without interest, if the refund is not claimed at registration.

This refund can be obtained electronically on the Ministry of Finance website, or by paper by filing an Ontario Land Transfer Tax Refund Affidavit for First-time Purchasers of Eligible Homes at the Land Registry Office.

An addition, land transfer tax that buyers should be aware of is that of the municipal land transfer tax in the City of Toronto. This tax is in excess of the provincial land transfer tax and these rates are on a similar scale as those imposed by Ontario.

Here are the additional tax rates for a single-family home in the City of Toronto:

Property Value: Municipal Land Transfer Tax Rate:
$0 – $55,000 .5%
$55,000 – $400,000 1.0%
$400,000+ 2.0%
*Rates are subject to change, applies to Canadian residents and non-residents

 

Typically, outside of certain special circumstances, the one who pays land transfer tax in Ontario is most often the buyer of the property. Further information can be acquired by visiting the Ontario Ministry of Finance website at www.fin.gov.on.ca.

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