Are you buying new land or property in Ontario recently? Then all you need to do is stop here because this article is about Land Transfer Tax and the "land transfer tax exemptions in Ontario." Provincial land Transfer tax, also known as LTT, is payable by people buying new land, real property, or land for beneficial interest. It is legally described as consideration, while Land Transfer Tax is payable for attaining the interest. It is the amount paid for the property or any debt or mortgage as part of the process. This article will give you proper details about the Ontario land transfer tax.
What is a Land Transfer Tax?
The provincial government collects a tax from buyers purchasing a home or land called the Land Transfer Tax. That means you need to understand the Land Transfer Tax while buying a home or land and work with an experienced real estate lawyer to handle the methods. The lawyer must be aware of why the homeowners pay the tax.
Who pays land transfer tax?
If you acquire land or property, your primary responsibility is to pay land transfer tax to the government after the acquisition. Land Transfer Tax is the amount of money paid for the land. If you have any amount left in debt or mortgage, that will also be a part of the land purchase. For example
:
The transfer of land with a term that has more than 50 years left on it
a company selling a home to one of its shareholders, or
The transfer of property investments to a corporation or the buying of property by a corporation if shares of the corporation are issued.
Why Do People Pay a Land Transfer Tax?
Land transfer tax is also called "property transfer tax" in some Canadian provinces. The municipalities provide a method to generate revenue to make budgets when they fail to collect income and sales taxes from the general public. This land transfer tax was unevenly applied, leveling out exceedingly high fees in different municipalities with large areas.
In the case of Ontario, the buyers mainly pay the government while purchasing land. Some factors are included in that term, like tracts of land, home buildings, and vast structures. If you consider the purchase a real estate transaction, you will usually pay the land transfer tax.
See also: Ontario real estate agent
How Much Does the Ontario Land Transfer Tax Cost?
Generally, it is unfortunate for Ontario buyers that they'll be subject to a second municipal land transfer tax that will increase the closing costs of land. However, if you're paying the tax, you must calculate it separately.
So, if you buy land or a home in Ontario, the Land Transfer Tax will be,
0.5 percent of the home's price up to and including $55,000
1% of the amount above $55,000 but not more than $250,000
1.5% of the amount above $250,000 but not more than $400,000
Between $400,000 and $2,000,000, 2% of the value
2.5% for values over $2,000,000 when the land has one or more single-family homes
First-Time Homebuyers & Ontario Land Transfer Tax Rebate
If you are a first-time home buyer, you can apply for a first-time home buyer rebate, which is quite a common way to reduce the land transfer tax in Ontario. The primary purpose of the tax rebates is to help you make the purchase relatively cheaper and more accessible.
You must be a first-time home buyer to get a refund. If you are a first-time home buyer, you can only get a land transfer tax return if you have never owned a home anywhere in the world.
When you buy a house with your partner, you must meet the exact requirements. The house cannot be a gift from anyone to the buyers.
In the case of the Ontario rebate system, you can receive up to $4000 back from the tax.
See also: Condo Status Certificate
Can I get out of paying the Land Transfer Tax?
You already know that the land transfer tax is not a small fee, but you must consider that the budget is for their purchases. It has been recorded that an average price in Ontario of around $1,120,000 would pay almost $40,000 in land transfer tax. You can see why someone would want to lower the cost.
Although it is positive that there are ways to do away with the land transfer tax without engaging in tax fraud.
In some cases, different buyers can avoid paying land transfer tax by keeping the title but switching the beneficial ownership to maintain the trust setup.
How Can I Avoid Paying the Land Transfer Tax?
In exceptional circumstances, you will not have to pay the transfer tax to the Provincial Government. Those particular instances cover the transfer between parties. Those are;
Some relationships involve the transfer of land.
A person's property ownership is occasionally transferred to their family business entity.
Just a few families' land transfers
Several life lease transfers from a non-profit or charity
There are some exceptions in every sector and the land transfer tax process. Although exceptions are infrequent and few. You must review the Land Transfer Tax Act carefully to understand the process, as it is only sometimes clear when exceptions apply. If you qualify for the exception criteria, you must talk to someone who can help.
See also: How to Buy a House in Ontario
FAQs
Is there a land transfer tax rebate?
Some provinces, like Ontario, offer rebates on land transfers. British Columbia also has a length transfer rebate system. There are no land transfer rebates in other areas like Quebec and Manitoba.
With the registration of a vesting order, is land transfer tax compensated?
Transfers are the same as vesting orders so they will be treated similarly. In the land sale tax statements, the following must be included:
the type of order,
the circumstances that led to it, and
the amount of the applicable consideration.
When it is a primary transfer, do I need to submit it?
Yes, you must submit your IRD number for all kinds of transfers.
Conclusion
The land transfer tax in Ontario has few exemptions. First-time homebuyers can reduce their tax liability by up to $8475. Imagine that you want to buy a house. In that case, you will have to deal with the circumstances of the government-provided land transfer tax. You must go through the taxation process if you are not a first-time home buyer. Though it is pretty painful to keep the unexpected price, it will be much worse if you attempt an illegal taxation system.
In that case, you can get help from a lawyer experienced in the real estate business process. This article provides detailed information about land transfer tax exemptions in Ontario. If that article helped you get your answers, please leave a comment.
