There are some Land Transfer Tax Rebate changes in effect for first-time home buyers in Ontario. If you’re a first-time home buyer looking to purchase your first home there have been some changes to LTT or Land Transfer Tax that you need to be aware of.
Land Transfer Tax Changes
The changes came into effect on January 1st, 2017 with an impact on first-time home buyers as well as those buying commercial properties. There have been increases in LTT rates. On the transfer of various categories of properties as well as a larger refund being available for eligible first time home buyers.
Understanding the Land Transfer Tax
If you plan to invest in land or purchase land in Ontario, then you have to pay what is called a land transfer tax to the province when the transfer of ownership occurs. This LTT tax is paid by the person that is buying the property and it’s done with electronic registration. This is usually done through the lawyer of the buyer. some transactions are exempt from this tax but for most everyday transactions you need to pay the LTT tax. Some common transactions which require you to pay this tax include buying a cottage, purchasing vacant land, buying a home, purchasing a condominium, buying commercial properties from a third party and transferring the ownership of a home from a parent to a child.
How Much Do You Pay?
The amount of the tax that you pay is calculated on the amount that you paid for the property. This is less any amount of debt that the buyer has such as assuming a mortgage obligation from a seller. the tax payable is calculated with a sliding scale and is as follows:
- Up to and including $50,000 0.5%
- $55,000-$250,000 1.0%
- $250,000 -$400,000 –1.5%
- Over $400,000 2.0%
- Over $2,000,000 where the land has one or two residences for single families -2.5%
If we look at an example of a $200,000 property, the buyer will pay 0.5% on the first $55,000. The buyer will then pay 1% on the remaining $145,000.
LTT Rate Increases
The biggest change that is come to the LTT rate scale is the transfer of commercial properties such as commercial, agricultural, industrial, and those that are multi-residential. As of January 1st, 2017, the rate that is payable in excess of $400,000 is subject to a tax rate of 2.0%. This is up from 0.5% from the first 1.5% which was payable previously.
Also, in 2017 is a new LTT bracket for the acquisition of one or two single-family homes. These are homes such as condominiums or semi-detached homes or a townhouse. If the consideration is over 2 million dollars, then these high-end properties are subject to a 2.5% tax. In the past, the highest bracket was just 2.0%. The revenues generated by LTT sales are expected to help first time home buyers obtain refunds.
Refund for First-Time Home Buyers
Before January 1st, 2017 first time home buyers could claim a refund of LTT up to $2,000. Anything that occurred on or after January 1st, 2017 offers a maximum refund of $4,000. The refund is claimed at the time of registration and it can help reduce any amount of LTT that is payable on the closing.
The new refund means that for a first-time home buyer that is eligible for LTT is going to be payable on the first $368,000 of the purchase price. If the purchase price for the property goes over that amount then LTT will be paid on the amount that is in excess. The refund that is available is $4,000 maximum per transaction and not per person. If there are more than, one individual purchasing theme the refund will not go over $4,000.
To be eligible for the refund the buyer has to be purchasing a home that is considered illegible. The types of properties that qualify are quite broad and include new, resale semi-detached, single, townhouses, condominiums, and mobile homes. The buyer for this home must also be considered as a first-time home buyer. The buyer cannot have:
- Owned a home anywhere else in the world
- Own interest in a home anywhere in the world
- Had any previous home ownership as you cannot requalify as a first time home buyer to take advantage of LTT
These refunds can help stimulate the market as it helps first time home buyers across the province of Ontario. It’s important to talk to a financial advisor or lawyer to determine your eligibility for LTT. This Land Transfer Tax Calculator can help you with the numbers but be sure to talk with an advisor.