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LAND TRANSFER TAX IN ONTARIO: And now the HST!

In Ontario, the land transfer tax has to be paid if land is purchased in the province or an interest in land is acquired therein. This measure holds good even if the transfer is not registered at one of the land registry offices in the province of Ontario. In this context, it would be wise to understand what exactly constitutes land for the purposes of purchasing or acquiring an interest under the land transfer tax regime in Ontario. Hence, for the purpose in question, land includes buildings and structures thereon along with the fixtures, like lighting arrangements, built-in appliances (boilers, etc.), cabinets and cupboards and things like that.

The amount actually paid and/or mortgage arranged for the land forms the basis of the land transfer tax, to which is added the money to be paid for any remaining mortgage or the debt the buyer has assumed as part of the arrangement to buy the land. Land transfer tax, in some instances, has been based on fair market value, like when:

  1. A lease is for a period exceeding fifty years;
  2. A company transfers its land to one of its shareholder; and
  3. Upon issuance of shares by a company, land is transferred to the company.

If the land is situated within the City of Toronto, then, in addition to Ontario land transfer tax, the City of Toronto’s own municipal land transfer tax could also be imposed. This has come into operation since February 1st, 2008, after the Toronto City Council under the City of Toronto Act, approved a new municipal land transfer tax as a taxation measure empowered to that organization/municipality.  Thus, the Toronto municipal land transfer tax will not apply to purchases for which the agreement of purchase and sale was entered into before December 31, 2007.

Relief

The land transfer tax is somewhat relaxed for first-time home buyers, who are eligible for a refund of all or part of the tax. The land transfer tax refund initially only applied to purchases of newly constructed homes for which the agreement of purchase and sale was entered into before December 14, 2007.

Where the agreements of purchase and sale have been entered into after December 13, 2007, the refund applies to all homes, whether newly constructed or resale. The refund applications are to be submitted within 18 months after the date of the transfer. This refund is limited to a maximum of $2,000 for the Ontario land transfer tax component, and $3,725 for the Toronto municipal land transfer tax; and, if claimed at the time of registration, it may offset the land transfer tax ordinarily payable on the closing date. If not claimed at that time, the refund could be claimed directly from the Ministry of Revenue without any  interest for the period the refund remained unclaimed. To qualify for the refund, the applicant should be at least 18 years of age, should move into the home and use it as a principal residence within 9 months after the date of transfer (usually your closing date) and should not have owned/possessed a home or an interest in a home, anywhere in the world (hence a “first time” home buyer). That is not all – if married, your spouse should also not have owned/possessed a home anywhere in the world.

In this connection, it is to be noted that from July, 2010, Ontario is introducing a federally administered Harmonized Sales Tax (HST), which will apply to most purchases and transactions. It will be applicable to newly constructed homes, but NOT to resale homes. A rebate of up to $24,000 regardless of the price of the new home is what the buyer will be entitled to.  This rebate is to provide relief from the new provincial (once known as the PST) component applied to the purchase of a newly constructed home, and to retain the original rebate on the federal (once known as the GST) component entitled on purchases of newly constructed homes.

Tax structure

It is also to be noted that the Ontario land transfer tax structure has remained unchanged since June 1st, 1989, and is as follows:

FIRST:  0.5% of the value of consideration for the transfer up to and including $55,000; and

SECOND:  1% of the value of the consideration which exceeds $55,000 up to and including $250,000; and

THIRD:  1.5% of the value of the consideration which exceeds $250,000 up to and including $400,000; and

FOURTH:  2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.

The Toronto municipal land transfer tax since its inception on February 1st, 2008 is as follows:

FIRST:  0.5% of the value of consideration for the transfer up to and including $55,000; and

SECOND:  1% of the value of the consideration which exceeds $55,000 up to and including $400,000; and

THIRD:  2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.

Notice that the Ontario land transfer tax component is more progressive in its rate structure, and thus overall slightly higher for purchase prices greater than $250,000.

Exemptions

There are only limited exemptions from land transfer tax, notable among which are:

  1. Certain transfers from an individual to their family business corporation;
  2. Certain transfers of farmed land between family members;
  3. Certain transfers between spouses; and
  4. Certain transfers of a life lease from a non-profit organization or a charity.

However, if affiliated companies transfer land between them and notice of the transfer is not registered in a land registry office, a deferral of land transfer tax could be available.

Elsewhere

Just for the sake of comparison, the situation in the United States differs from state to state, and even city to city.  For example, Maryland exempts certain “first time buyers” from a percentage of the total or excludes a portion of the property’s sales price from taxation altogether. Also, land transfer tax rates in the states and their respective cities range from very small to relatively large. Thus for example, it is 0.1 per cent in the state of Colorado while 4 per cent in the city of Pittsburgh. But then, Pittsburgh is an industrial  city.

Call the lawyers at Levy Zavet PC to help you structure and evaluate your closing costs.  Remember, the applicable land transfer taxes, HST and other closing costs may be the more important determinable factors when assessing a profitable investment from a non-profitable one.

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