A land transfer tax, which may also be referred to as a property transfer tax or even a welcome tax, is one of several closing costs that must be paid when buying property in Canada. It’s important to plan how you’ll pay the land transfer tax when you’re deciding on a realistic budget for your future home.
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What is the land transfer tax in Canada?
Land transfer tax revenue is collected by either the province or the municipality, depending on where you live. Every province has some version of the land transfer tax, although it may go by a different name. Quebec levies a “welcome tax,” for instance, while Alberta and Saskatchewan charge a “property registration fee.”
Land transfer taxes are not equal across Canada but vary depending on the region. Some municipalities will charge considerably more transfer fees than others. However, if you are a first-time home buyer, you may be eligible to get some (or all) of the tax payment refunded.
How to calculate the land transfer tax
Land transfer taxes are typically calculated as a percentage of the property’s value, which is often quite similar to the purchase price. Each province or municipality sets its own tax rate for real estate transfers, and in some cases, both levels of government levy the tax.
To help visualize how land transfer taxes are calculated, let’s compare the purchase of a property valued at $500,000 in Ottawa, Toronto and Vancouver.
Ontario uses marginal tax brackets based on home price. So, for an Ottawa house that costs $500,000 you would pay:
0.50% on the first $55,000 of the price = $275
1% on the next $195,000 of the price = $1,950
1.5% on the next $150,000 of the price = $2,250
and 2% on the final $100,000 of the price = $2,000
Total Ottawa land transfer tax: $6,475
But, if you are a first time home buyer in Ontario you might be eligible for a land transfer tax rebate of up to $4,000, reducing your total transfer tax bill to $2,475.
Now, if you were to buy a $500,000 house in Toronto, you would have to pay a municipal land transfer tax in addition to Ontario’s provincial tax — essentially doubling the bill. You’ll pay $6,475 for the provincial portion and an additional $6,475 for the municipal portion; $12,950 in total.
But if you’re qualifying a first-time home buyer in Toronto, you could be eligible for a rebate of up to $4,475, leaving you to pay $8,475 in total land transfer tax.
While properties in Vancouver are taxed only at the provincial level, the marginal tax rates in British Columbia are higher than Ontario.
For a Vancouver house that costs $500,000 you would pay:
1% on the first $200,000 of the price = $2,000
2% on the next $300,000 of the price = $6,000
Total Vancouver land transfer tax: $8,000
But, as a first-time home buyer in B.C., you could be eligible for a 100% rebate of that $8,000, meaning you would ultimately not pay any land transfer tax.
The land transfer tax needs to be paid in full following the sale of the home — it cannot be added to your mortgage — so it should be factored into the funds you save for upfront closing costs.
Who pays land transfer tax?
In Canada, no matter the province or municipality, it’s the buyer that pays the land transfer tax, not the seller.
Land transfer taxes are due as soon as the buyer takes possession of the property. Unlike property taxes, the land transfer tax is a one-time payment; you do not have to pay it annually.
How to avoid land transfer taxes
In most cases, purchasing property in Canada means paying some type of land transfer tax.
However, as mentioned above, qualifying first-time home buyers may be eligible for a partial or even a full refund of the tax, depending on the province, municipality and cost of the house.
There are other situations in which land transfer tax can be avoided, though each province has its own rules and eligibility criteria. These include:
- Purchasing a newly built home.
- Transferring the property to a lineal descendent (i.e. parent to child).
- Transferring a property between spouses.
- Transferring a property from a person to a family business.
- Transferring a farming property between family members.
Again, each province and municipality has its own rules regarding exemptions so seek specific details from your local government and consider speaking to an expert, such as an accountant or tax specialist.