Click on this link to calculate Land Transfer Tax
The following chart illustrates Land Transfer Taxes for Ontario:
Up to $55,000 x .5% of total property value
From $55,000 to $250,000 x 1% of total property value
From $250,000 to $4000.00 x 1.5% of total property value
From $400,000 up x 2% of total property value
CITY OF TORONTO BUYERS ONLY
Effective February 1, 2008 if you are a buyer in the City of Toronto (416 area code), you will be subject to an additional new City of Toronto Land Transfer Tax for any real estate purchase made in 2008 onwards. There is however an exemption for first time buyers buying residential real estate up to a purchase price of $400,000. The additional City of Toronto tax is calculated as follows:
one-half of 1% of the value of the consideration for the conveyance up to and including $55,000
1% of the value of the consideration which exceeds $55,000 up to and including $400,000
1.5% of the value of the consideration which exceeds $400,000 up to and including $40 million
1% of the value of the consideration which exceeds $40 million
If the value of the consideration for the conveyance exceeds $400,000 and the conveyance is a conveyance of land that contains at least one and not more than two family residences, an additional tax of:
one-half of 1% of the amount by which the value of the consideration exceeds $400,000 up to and including $40 million; and
1% pf the amount by which the value of the consideration exceeds $40 million
As mentioned above, the City of Toronto Tax does not affect buyers in the (905) area code.
What is the Potential Impact of the New Tax on Real Estate in the City of Toronto and Suburbs?
2007 was a very strong year for the City of Toronto (416 area code). The number of Downtown condo sales was up about 25% from last year, and the same is true of detached homes in cheaper suburbs such as north Scarborough. Prices overall are forecast to increase by about 8-10% in 2008, with the relatively cheaper condo market appreciating by even more than this. Multiple offers continue with regularity in hot City of Toronto neighbourhoods and demand for the most part exceeds supply. Employment continues to be at a record high, and interest rates, while higher than a few years ago, remain at historic lows with increasing signals that reductions are in store for 2008.
January 1 until the middle of the year we are likely to see the following:
• the market move along at a respectable clip, as continued low interest rates and near full time employment support consumer confidence
• a reduction in down payment and equity as both first time and repeat home buyers make purchases with less money (effectively funding the tax with the amount that they previously could have used for a down payment)
• even higher demand for ‘staged' and ‘move-in' condition homes relative to fixer-uppers, as buyers realize that any ‘renovation money' must now be applied to the tax.
• investors and repeat buyers waiting longer before making that second home purchase or investment purchase (to save up enough)
• perhaps more selectivity from investors, since the rate of return calculation will not be as favourable in the new year, once the tax is incorporated
• incentives from major lending institutions to help home buyers. As an example, BMO & TD have just announced that they will help pay the new land transfer tax up to a cap for home buyers for a limited time (some conditions apply)
• perhaps more activity in (905) area code (near the border with the City of Toronto), as buyers take advantage of the lower land transfer impact of buying outside the City borders.
In the long term (after the middle of 2008), no one is really sure. It is possible we may see:
• more development in the (905) area on the City borders, as developers capitalize on demand by buyers just on the outskirts of Toronto (i.e. Thornhill, south Markham, east Mississauga, west Pickering etc.)
• smaller and more affordable housing development within the City core (i.e. high density construction) to keep the purchase price at a level that attracts first timers (who are exempt for a lot of this tax) and repeat buyers (where the impact of a regressive tax is not as pronounced at lower price points
• more redevelopment of areas within the 416 area code that have up to now been neglected by developers (parts of west and east Toronto), as their relative affordability encourages development.
The Bottom Line on the New Tax:
In 2007, the City of Toronto real estate market was very solid and in some cases (i.e. the new build condo market) was beginning to exhibit some signs of speculative frenzy. We continue to see more demand than supply for decent real estate in the 416 area code. This new City land transfer tax, to the extent that it causes speculators to be more prudent when making an investment decision, is a good thing. To the extent that it makes first time home buyers more cautious about buying beyond their means or jumping in without sufficient equity, is also a good thing. While the implementation of double-taxation by the City in order to cover its mismanagement is abhorrent to some, it is possible, somewhat perversely, that this City tax may in fact sustain our real estate boom, by preventing a bubble in the making from forming and/or getting out of control. Could it be the law of unintended consequences at work?
In an open letter to Toronto Mayor David Miller, the Toronto Real Estate Board (TREB) has raised concerns about a possible home-buying tax in Toronto as the city discusses potential new revenue sources. They say a Toronto land transfer tax, on top of the existing provincial land transfer tax, would cause homebuyers to pay the same tax twice and encourage homebuying outside city limits.
"A land transfer tax is a home-buying tax. It is a tax charged directly to homebuyers when they purchase a property, which is usually intended to offset costs for providing services directly related to real estate transactions. If the City intends to charge a land transfer tax just to raise additional revenue for general municipal services, is it fair to expect homebuyers to pay for services that the whole community benefits from?," said Dorothy Mason, President of the Toronto Real Estate Board.
"If the City adopts a land transfer tax, Toronto homebuyers will be faced with a double whammy of land transfer taxes - a municipal land transfer tax and a provincial land transfer tax," added Mason.
The provincial government already charges a land transfer tax on property transactions. For the average Toronto home, according to TREB's statistics, the provincial land transfer tax payable is approximately $4200.
"If the City moves ahead with a second land transfer tax of 0.5 percent, as is being considered, average Toronto homebuyers could be faced with paying almost $1900 on top of the $4200 that they already have to pay for the existing provincial land transfer tax, money that could be spent on other expenses when purchasing a home such as appliances. That's an additional 45 percent in land transfer tax. Even a 0.1 percent Toronto land transfer tax would represent almost a 10 percent increase in land transfer taxes. Also, with total closing costs (e.g. legal fees, land transfer tax) usually around 1.5 percent of a property's selling price, a 0.5 percent Toronto land transfer tax would represent a 33 percent increase in closing costs," said Mason.
TREB's letter to Mayor Miller outlined specific concerns about the impact that a second land transfer tax would have for the City.
"Mayor Miller and all of City Council should realize that forcing homebuyers to pay a second land transfer tax will have implications for the City. It will make Toronto housing less affordable, and encourage homebuyers to choose to live outside of the City, where they only have to pay the land transfer tax once. This could mean more commuting, more traffic, and environmental impacts, like smog, for the GTA", said Mason.
In the open letter to Mayor Miller, Mason scores the following points:
- "As the City's discussion paper notes, there is limited experience with other municipalities that charge a land transfer tax. However, the City's discussion paper fails to point out that in some of these municipalities there is no provincial/state land transfer tax, meaning that the homebuyer is not faced with a double whammy of land transfer taxes, as is being considered in Toronto."
- "The existing provincial land transfer tax is already a heavy burden for homebuyers and a Toronto land transfer tax would exacerbate this. For example, the average homebuyer in Toronto already has to pay a provincial land transfer tax of approximately $4,200 (on the averaged priced Toronto home in 2006 based on TREB MLS® statistics), in full at the time of closing. This means that a Toronto land transfer tax of 0.5 percent, as noted in the City's discussion paper, would mean close to an additional $1900 in land transfer taxes for an average Toronto homebuyer, which represents an additional 45 percent of land transfer taxes."
- "Even a Toronto land transfer tax of 0.1 percent would represent close to an additional $400 (a 10 percent increase) for the average Toronto homebuyer -- a significant amount of money at a time when most people can least afford it because of the numerous other expenses (appliances, furniture, renovations) that come with home ownership."
- "Generally, closing costs equal approximately 1.5 percent of the purchase price of a property. If the City implements a second land transfer tax of 0.5 percent, as considered by the City's discussion paper, this represents a 33 percent increase in closing costs for Toronto homebuyers. Even a 0.1 percent Toronto land transfer tax would represent almost a 10 percent increase in land transfer taxes on the average home. At a time when the City's population growth is being vastly outpaced by surrounding areas, what kind of message does this type of home buying tax send?"
- "Taxpayers have the right to know what benefits they receive from taxes. What added services, from the City, can homebuyers expect for paying a second land transfer tax? If this tax is intended simply to generate general revenue, then the City is discriminating against homebuyers and asking them to fund services that existing residents will benefit from. Property taxes, paid by all, are intended to pay for services that everyone benefits from."
- "Under the new City of Toronto Act and the new Municipal Act, Toronto is the only Ontario municipality with the authority to levy a local land transfer tax on top of the existing provincial land transfer tax. This means that, if Toronto levies a second land transfer tax, the City would be creating a financial incentive for homebuyers to choose to buy a property outside of Toronto's borders. Recent census data already demonstrates that Toronto is growing at a much slower rate than surrounding municipalities; adding additional costs in Toronto will only exacerbate this trend, meaning more urban sprawl, which means more commuting, more traffic and more smog."
- "The average price of a re-sale home in Toronto in 2006 was approximately $378,000. This makes Toronto one of the most expensive cities in the country to live in. As noted above, a second land transfer tax could add considerable costs for homebuyers. Any increase will reduce Toronto's affordability, making it more difficult to attract new residents and achieve the intensification goals that the City has laid out in its Official Plan."
- "According to a study conducted by Clayton Research for the Canadian Real Estate Association, each re-sale housing transaction in Ontario generates approximately $27,000 in spin-off spending for things like furniture, appliances, renovations, etc. In recent years, this means that re-sale real estate transactions have contributed more than $2 billion per year to Toronto's economy. Any impact on Toronto's real estate market, from a second land transfer tax, will impact the overall economy."