A land transfer tax, sometimes referred to as a property transfer tax, is one of several closing costs that must be paid when buying property in Canada.
It’s important to understand how much land transfer tax might cost you — and how you’ll pay it — when you’re deciding on a realistic home buying budget.
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What are land transfer taxes?
Land transfer taxes are collected by either the province or the municipality, depending on where you live. Every province has some version of a 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 vary by region, and some municipalities charge considerably higher transfer fees than others. However, if you are a first-time home buyer, you may be eligible to get some (or all) of your tax payment refunded.
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, land transfer taxes must be paid in full as a one-time payment. They should be factored into the funds you set aside for closing costs.
Can you avoid land transfer taxes?
In addition to cases where first-time home buyers may be eligible for a partial or full refund of their land transfer taxes, there are other situations where land transfer tax can be avoided. 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.
Each province and municipality has its own rules regarding land transfer tax exemptions, so seek specific details from your local government and consider speaking to an expert, such as an accountant or tax specialist.
How to calculate land transfer tax
Land transfer taxes are typically calculated as a percentage of the property’s estimated value, which often resembles the purchase price. Each province or municipality sets its own tax rate for real estate transfers. 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. For a house in Ottawa 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
Your total land transfer tax would be $6,475. If you’re a first time home buyer in Ontario, you might be eligible for a land transfer tax rebate of up to $4,000, which would reduce your land transfer tax bill to $2,475.
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, or $12,950 in total.
But if you’re a qualifying first-time home buyer in Toronto, you could be eligible for a municipal rebate of up to $4,475, plus the $4,000 provincial rebate. Your total land transfer tax would be $4,475.
Properties in Vancouver are taxed only at the provincial level, but 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
Your total land transfer tax would be $8,000, but as a first-time home buyer in B.C., you could qualify for a 100% rebate.
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