When you purchase land in Ontario, you will have to pay Land Transfer Tax. This tax, like any other tax implemented by the government, sounds like a big deal. Unfortunately, it is. However, before you worry yourself about another taxation situation, here’s a cheat sheet to help you understand everything about it. Welcome to Land Transfer Tax 101!
What is Land Transfer Tax?
Land Transfer Tax is applicable in most Canadians provinces. In Ontario when you buy land, like any other purchase you would make, you will be taxed on it. LTT is an obligatory contribution to provincial revenue.
What is considered land?
Land is considered to be anything from buildings that already exist to buildings that are to be constructed. Some people confuse land with rural farm acreage but it is anywhere and anything that you can live or operate a business on.
How is Land Transfer Tax calculated?
LTT is calculated based on the amount paid for the land. Also, if there are amounts remaining on the existing mortgage, those costs will be taken into consideration if you have a prior arrangement with the land’s former owner.
There are factors at play when it comes to Land Transfer Tax calculation.
From the home’s total value you pay:
- 0.5% up to an including $55,000
- 1% higher than $55,000 up to $250,000
- 1.5% above $250,000
- 2% above $400,000 if the land contains one or two single-family residences
Additionally, some special cases will apply when it comes to calculating LTT:
- Transferring a lease with a remaining term that exceeds 50 years
- If the transfer of land is going to a corporation or to one of its shareholders and has one or two single-family residences
These two aforementioned points are directed at people who are purchasing rental units.
When do I pay this tax?
As soon as the transfer is registered, you’re on the clock to pay. The registration needs to take place within 30 days of closing.
What if I am a first-time homebuyer?
Ontario offers something called the Ontario First-Time Homebuyer Land Transfer Tax Rebate. It is equal to the total value of the LTT or up to a maximum of $2,000. In order to be eligible to receive this discount:
- You need to be 18 years or older
- You have to move into your home within nine moths of when you purchase it
- You can’t have owned a home anywhere else in the world (otherwise you are not considered a first-time buyer, even if the home was given to you)
- Your spouse cannot have owned a home while being your spouse
- You need to apply for this refund within 18 months after the home’s purchase
- Your home must be eligible for home warranty