Purchasing a house is a significant event that involves various financial factors. When buying property in Ontario, the land transfer tax (LTT) is a factor that must be taken into account.
Understanding key real estate terms about land tax and its expenses can aid in simplifying the process and guarantee readiness when purchasing a property in the province. The article will provide information on the LTT in Ontario and offer tips for cost reduction from a top Pickering realtor.
What Is Land Transfer Tax Ontario?
The land transfer tax is a necessary fee that is imposed when real estate ownership is transferred between parties. The tax amount is worked out as a percentage of the overall purchase price and varies depending on the province or territory where the property is located. In Ontario, buyers are responsible for paying LTT on most property types, including residential, commercial, and cottage properties.
How Does the Land Transfer Tax Work in Ontario?
In Ontario, the LTT is calculated based on a tiered system that takes into account the purchase price of the property. For most residential and commercial properties, the tax rate is calculated as follows:
- 5% on the first $55,000 of value;
- 0% for the portion of the value between $55,000 and $250,000;
- 5% for the portion of the value over $250,000.
- 0% on amounts exceeding $400,000
- 5% on amounts exceeding $2 million, where the land contains one or two single-family residences
Can I Avoid Land Transfer Tax In Ontario?
Land transfer tax is a necessary part of buying property in Ontario, and it cannot be avoided. However, there are some ways to reduce the cost of the tax. This includes:
Purchasing A New Build Home
Buying a new construction home in Ontario can lead to savings on LTT, as buyers are entitled to receive a rebate of up to $4,000 on the tax expenses.
First-Time Home Buyers
First-time home buyers in Ontario are eligible for a rebate of up to $4,000 on the land transfer tax. To qualify for the rebate, buyers must meet a number of criteria, including:
- Never owned or had any financial interest in a home anywhere in the world – this is the case even if the home was inherited
- Be at least 18 years of age
- Your spouse also cannot have had a financial interest in a property anywhere in the world – this includes owning a property.
Transferring The Property To A Lineal Descendant
Another option is to transfer the property to a lineal descendant, such as a spouse or child.
When transferring a property in this way, there is no LTT payable. This can be an effective way to reduce the cost of buying a property.
Transferring A Property Between Spouses
Transferring a property between spouses is another way to avoid LTT. This option is only available for married couples or common-law partners who are both Ontario residents.
Transferring A Property Between Spouses
Transferring a property between spouses is another way to avoid LTT. This option is only available for married couples or common-law partners who are both Ontario residents.
Transferring A Property From A Person To A Family Business
One method of avoiding LTT is to transfer property from an individual to a family business, which requires the family business to be owned and controlled by lineal descendants of the transferring person.
Transferring A Farming Property Between Family Members
Transferring a farming property to a lineal descendant or someone who has been actively involved in the family farm business is an option for farmers to avoid the LTT.
What Other Taxes Will I Need To Pay?
In addition to the land transfer tax, buyers in Ontario will also need to pay other taxes when purchasing a property. These include:
Harmonized Sales Tax (HST)
When purchasing a newly constructed home, buyers may be subject to Harmonized Sales Tax (HST), as well as provincial and municipal taxes. Additionally, there may be certain services related to the purchase of a home, such as legal fees, appraisal fees, and home inspection fees, for which buyers may also be responsible for paying GST/HST.
Municipal Land Transfer Tax (MLTT)
Certain municipalities in Canada impose a Municipal Land Transfer Tax (MLTT) along with the provincial land transfer tax. The MLTT is calculated similarly to the provincial LTT and is an additional fee. The specific amount of the MLTT varies by municipality.
Property Tax
Buyers will typically need to pay property taxes on the assessed value of the property, including LTT and MLTT, often on an annual basis.
Property Insurance
In Ontario, property insurance is a necessary purchase for buyers of real estate. Insurance policies can protect buyers from various risks, including fire and theft. Mortgage lenders always require property insurance, and the cost of the coverage may differ based on the type of insurance chosen.
Utilities
Along with taxes and insurance, purchasers must cover the expenses of utilities, such as water and electricity, which may fluctuate based on the property’s type.
Hire a Real Estate Agent in Pickering
The land transfer tax is a significant consideration when buying a property in Ontario. It is essential to comprehend the tax mechanism and any other taxes or fees linked with home buying. This way, buyers can guarantee that they have complete knowledge of the costs involved in purchasing a property and are adequately prepared for the purchase.
When searching to hire a real estate agent in Pickering, it may be beneficial to consider an Ontario expert who can provide guidance on various taxes and fees related to buying a home, including the land transfer tax. Additionally, they can assist in finding a suitable home within your budget and negotiating a reasonable purchase price while ensuring that all necessary costs and taxes are covered.