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SUCCESSion: Tax & Estate Matters

Nov 16, 2016

Land Transfer Tax Update

On November 14, 2016, the Ontario Minister of Finance, Charles Sousa, in the Ontario Economic Outlook and Fiscal Review, outlined several proposed changes to Ontario's Land Transfer Tax ("LTT") system. The proposals are set to take effect January 1, 2017.

Generally speaking, LTT is tax paid by the purchaser of property or land in Ontario, payable to the Province when the transaction closes. The amount of LTT is based on the amount paid for the property or land.

The proposed changes aim to update the LTT rates, enhance support for first-time homebuyers and restrict the first-time homebuyer refund to Canadian citizens and permanent residents.

Updating LTT Rates

Currently, the tax rates for LTT are:

  • 0.5% up to and including $55,000;
  • 1% above $55,000 up to and including $250,000;
  • 1.5% above $250,000; and
  • 2% above $400,000 where the land contains one or two single-family residences.

The Province is proposing to update the rates, effective January 1, 2017, as follows:

  1. There will be a new tax rate of 2.5% on the portion of the purchase price above $2,000,000 for purchases of "single-family residences", which include, for example, detached and semi-detached homes, townhomes and condominiums.
  2. Where previously the tax rate of 2% applied only to purchases of such residential properties for the portion of the purchase price above $400,000,   the 2% rate would now also apply to non-residential properties, which include, for example, commercial, industrial, multi-residential and agricultural properties.

Please be reminded that the proposed changes are to the Provincial rates only. Purchasers of property or land in the City of Toronto are still responsible for paying land transfer tax to the municipality, in addition to the tax paid to the Province. There have been no announcements by the City of Toronto that there will be a corresponding change to the municipal rates.

‚ÄčEnhancing Support for First-Time Homebuyers

To help Ontarians buy their first home, a first-time homebuyer is eligible for a refund of all or part of the LTT, up to a maximum of $2,000. This eliminates any tax payable on the first $227,500 of the purchase price of the home.

The Province is proposing to double the maximum refund for first-time homebuyers from $2,000 to $4,000. With the increased refund, no LTT would be payable on the first $368,000 of the purchase price of the home. The first-time homebuyer will be responsible for LTT for the portion of the purchase price above $368,000.

For example, a purchaser of a $600,000 home currently pays $6,475 in LTT calculated as follows:

  • 0.5% up to and including $55,000, which equals $275; plus
  • 1% above $55,000 up to and including $250,000, which equals $1,950; plus
  • 1.5% above $250,000, which equals $2,250; plus
  • 2% above $400,000 up to $600,000, which equals $4,000; minus
  • $2,000 (first-time homebuyer refund).

When the refund is increased to $4,000, LTT on this purchase will be reduced to $4,475.

From January 1, 2017 onward, the purchase of a home by a first-time homebuyer with a purchase price of $368,000 up to $2,000,000 will result in LTT savings of $2,000.

Restricting the Refund for First-Time Homebuyers to Canadian Citizens and Permanent Residents

The Province is proposing to restrict eligibility of the first-time homebuyers refund to Canadian citizens and permanent residents. As a transitional measure, purchasers who entered into agreements of purchase and sale on or before November 14, 2016, would remain eligible for the refund regardless of citizenship of residency status. Purchasers who are not Canadian citizens or permanent residents when the transaction closes would have 18 months to become eligible. Upon obtaining Canadian citizenship or permanent resident status, they would be able to apply for the refund within the 18-month period. 

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