It’s no secret that purchasing a home almost always seems to be accompanied by “secret” additional costs. Lawyer fees, home inspection costs, taxes you didn’t know about until now – if you’re a first time home buyer (and even if you’re not!) it can all feel rather daunting.
Today, I’d like to help demystify one of the most significant costs associated with buying a home, so that it doesn’t feel like a huge surprise as you approach your closing date: Land Transfer Tax.
What is Land Transfer Tax?
In Canada, regardless of province, a Land Transfer Tax is typically based on the amount paid for the land, in addition to the amount remaining on any mortgage or debt absorbed as part of the purchase agreement. Unlike property taxes which are paid yearly, the Land Transfer Tax is a one-time payment, made in one lump sum, due as soon as the buyer takes possession.
How much is it?
The amount can vary widely by region, as it’s a percentage determined by the fair market value of the land at the time of purchase – which, itself, varies considerably depending on where you are.
Right now in Ontario, you’d pay:
0.5% on amounts up to and including $55,000
1.0% on amounts exceeding $55,000, up to and including $250,000
1.5% on amounts exceeding $50,000, up to and including $400,000
2.0% on amounts exceeding $400,000
So for a house in Ottawa that costs $500,000, your total Land Transfer Tax would be $6,475.
Who pays the Land Transfer Tax?
The buyer is the one who pays the land transfer tax, and the fees are paid to the province. So in Ottawa, Land Transfer Taxes are paid to the Province of Ontario.
There are a few exemptions, though.
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.
Other exemptions include:
- Transferring the property from 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
I realize this is a lot of information to take in! Your REALTOR® should be able to help guide you through the entire process, but at least now you are armed with some knowledge that should eliminate at least some surprises come closing day.
Looking for advice on buying or selling, or simply have questions about Land Transfer Tax? Contact me today, I am happy to chat.