A land transfer tax (LTT) is a tax that is levied by the government when ownership of a property is transferred from one owner to another. This tax is typically paid by the buyer of the property and is based on the property’s purchase price. The land transfer tax is usually calculated as a percentage of the purchase price, and the rate can vary depending on the property’s location and the local government’s policies.
In Canada, land transfer taxes are levied by provincial and territorial governments, and the rules and regulations regarding LTTs can vary by location. In addition to the provincial and territorial LTTs, some municipalities may also levy their land transfer taxes. The city of Toronto land transfer tax is one such municipality.
The purpose of a land transfer tax is to generate revenue for the government, which can then be used to fund essential public services, such as healthcare, education, and infrastructure. The land transfer tax may sometimes support specific programs or initiatives, such as affordable housing or environmental projects.
Everything You Need to Know About Land Transfer Tax
Land Transfer Tax Isn’t Included in Listing Prices
The property listing price doesn’t include land transfer tax (LTT), which can sometimes catch buyers off guard when calculating their final costs. Since land transfer tax is a government-imposed tax applied at the time of purchase, it’s separate from the listing price and depends on factors like the property’s value and location. This tax can add a substantial amount to your total expenses, especially in higher-value markets.
How Much is Land Transfer Tax?
The land transfer tax (LTT) is a fee regulated by the Land Transfer Tax Act. The rates usually range from 0.5 to two per cent, depending on the province, with some regions charging extra for properties valued over $2 million. This tax helps fund local services and can also be used to manage housing demand in high-priced markets. Land transfer tax is a tiered tax, meaning different portions of the property’s value are taxed at varying rates. If you want to know how to calculate land transfer tax, you can use an online land transfer tax calculator. These tools take into account the location of the property, its purchase price, and any applicable provincial or municipal rates.
Who Pays the Land Transfer Tax?
Buyers often ask who pays the land transfer tax. The property buyer typically pays the land transfer tax when the ownership is transferred from the seller to the buyer. The amount of land transfer tax is usually based on the property’s purchase price and is calculated as a percentage of that price. The exact rate can vary depending on the property’s location and the local government’s policies.
In rare cases, the seller may agree to pay a portion or all of the land transfer tax as part of the negotiation process with the buyer. However, this is not the norm for who pays land transfer tax, and paying the land transfer tax usually falls on the buyer.
Homebuyers need to factor in the cost of the land transfer tax when considering the overall cost of purchasing a property. In some cases, the land transfer tax can be a significant expense, particularly for properties in areas with high property values.
When is the Land Transfer Tax Due?
Under the Land Transfer Tax Act, the tax is typically due at closing. The land transfer tax payment is made directly to the government, often through your lawyer or real estate agent, who collects the funds along with other closing costs like legal fees, title insurance, and registration fees. Once these payments are made, the legal title of the property is transferred to the buyer, and the deal is finalized.
Land Transfer Tax Rates
The land transfer tax rates in Canada vary by province and territory, and, in some cases, by municipality. Here are the current land transfer tax rates for each province and territory:
Alberta – There is no provincial LTT in Alberta. However, it does charge a Transfer of Land registration fee and a mortgage registration fee.
British Columbia – The LTT in British Columbia is calculated as follows:
- 1% on the first $200,000 of the purchase price
- 2% on the portion of the purchase price between $200,000 and $2 million
- 3% on the portion of the purchase price over $2 million
- A further 2% is required for residential properties with a purchase price over $3 million for a total of 5%.
Manitoba – The LTT in Manitoba is calculated as follows:
- No tax on the first $30,000 of the purchase price
- 5% on the portion of the purchase price between $30,000 and $90,000
- 1% on the portion of the purchase price between $90,000 and $150,000
- 5% on the portion of the purchase price between $150,000 and $200,000
- 2% on the portion of the purchase price over $200,000
New Brunswick – The LTT in New Brunswick is 1% of the purchase price.
Newfoundland and Labrador – The LTT in Newfoundland and Labrador is calculated as follows:
- For properties or mortgages under $500, only a flat fee of $100 is charged
- For properties exceeding $500, a flat fee of $100 is charged plus $0.40 for every hundred dollars over $500
Northwest Territories – The LTT in the Northwest Territories is calculated as follows:
- $1.50 for every $1,000 or part thereof of property value (subject to a minimum charge of $100)
- $1 for every $1,000 or part thereof of property value (for part of property value greater than $1,000,000)
- $1 for every $5,000 or part thereof of mortgage amount (subject to a minimum charge of $80)
Nova Scotia – Each municipality in Nova Scotia sets their own land transfer tax, which can vary from 0.5% to 1.5% of the purchase price.
Nunavut – The LTT in Nunavut is calculated as follows:
- 1% on the first $55,000 of the purchase price
- 2% on the portion of the purchase price between $55,000 and $250,000
- 3% on the portion of the purchase price over $250,000
Ontario – The LTT in Ontario is calculated as follows:
- 5% on the first $55,000 of the purchase price
- 1% on the portion of the purchase price between $55,000 and $250,000
- 5% on the portion of the purchase price between $250,000 and $400,000
- 2% on the portion of the purchase price over $400,000
- 5% for amounts exceeding $2,000,000 where the land contains one or two single-family residences
If your new home is located in the city of Toronto, you’ll also pay the following city of Toronto land transfer tax in addition to the Ontario land transfer tax:
- 5% of your home’s value up to $55,000.
- 0% of any amount between $55,000 and $250,000.
- 5% of any amount between $250,000 and $400,000.
- 0% of any amount between $400,000 and $2 million.
- 5% of any amount between $2 million and $3 million.
- 5% of any amount between $3 million and $4 million.
- 5% of any amount between $4 million and $5 million.
- 5% of any amount between $5 million and $10 million.
- 5% of any amount between $10 million and $20,000,000.
- 5% of any amount above $20 million.
Prince Edward Island – The LTT in Prince Edward Island is calculated as follows:
- No land transfer tax on the first $30,000 of the purchase price
- 1% on the portion of the purchase price over $30,000
Quebec – The LTT rates in Quebec are as follows:
- 5% on the first $51,700 of the purchase price
- 1% on the portion of the purchase price between $51,700 and $258,600
- 5% on the portion of the purchase price over $258,600
Saskatchewan – There is no LTT in Saskatchewan. However, they do have a land title fee.
Yukon – There is no LTT in Yukon. However, they do have assurance fees, a title transfer fee, and a mortgage fee.
How to Calculate Land Transfer Tax
In most regions, land transfer tax computation follows these general steps:
- Break down your property’s purchase price into the tax brackets for your location.
- Apply the appropriate tax rate to each portion of the purchase price.
- Add these amounts together to get your total land transfer tax.
For example, when calculating land transfer tax in Ontario for a $600,000 property:
- 5% on the first $55,000 = $275
- 1% on $55,001 to $250,000 = $1,950
- 5% on $250,001 to $400,000 = $2,250
- 2% on $400,001 to $600,000 = $4,000
So, how much is land transfer tax in Ontario? The total Ontario land transfer tax would be $8,475. If the property is in Toronto, you would also add the Toronto land transfer tax calculated using the same method, effectively doubling your tax payment.
Using a land transfer tax calculator is the simplest way to determine your exact amount. These online tools are specifically designed to account for all tax brackets in your area, including any additional municipal taxes such as the City of Toronto land transfer tax.
Do I Pay Land Transfer Tax as a First-Time Homebuyer?
You must still pay the land transfer tax as a first-time buyer. However, some provinces and territories offer land transfer tax rebates or exemptions for first-time homebuyers. The eligibility criteria, the amount of the rebate, and the exemption rules vary by location. You can find out what rebates you are eligible for on your provincial government website.
Some Areas Offer Rebates or Exemptions
Transferring property between family members, such as to a spouse or child, may qualify for exemptions. This can provide major savings, especially in high-tax areas. In a divorce, if one spouse transfers their share of the property to the other as part of the settlement, some provinces offer exemptions from land transfer tax, reducing the financial strain during the division of assets. Some provinces have specific exemptions for unique situations like farmland or homes in designated regions. If you’re unsure whether you’re eligible for these rebates, a real estate professional can help clarify the details so you don’t miss out on potential savings.
What Happens if You Don’t Pay the Land Transfer Tax?
If you don’t pay the land transfer tax, you could face several consequences. Penalties and interest charges will start adding up, making the total amount owed even higher. The government may also place a lien on the property, which means you won’t be able to sell or refinance it until the tax is fully paid. This lien can also hurt your credit score, making it harder to get financing in the future. In some cases, if the issue remains unresolved, legal action may be taken to recover the unpaid tax.
How to Avoid Land Transfer Tax
While land transfer tax is a standard part of property transactions in most Canadian provinces, there are some ways to reduce or potentially avoid these costs in certain situations.
Land transfer tax exemptions exist for specific circumstances that can save you thousands of dollars. Property transfers between family members through inheritance may qualify for reduced taxes or exemptions, depending on your province.
First-time homebuyers wondering how to avoid land transfer tax should look into rebate programs. Although these don’t eliminate the tax entirely, they can significantly reduce your tax burden.
Some buyers consider purchasing properties in regions without land transfer tax. Alberta and Saskatchewan don’t have this specific tax, although they have other fees.
Before implementing any strategy to reduce or avoid land transfer tax, consult with a real estate lawyer who understands local regulations. Improper attempts to circumvent these taxes can result in penalties and additional costs that far exceed the original tax amount.
Why Hire a Real Estate Agent?
Hiring a real estate agent can be a big help when it comes to dealing with land transfer tax (LTT). A REMAX agent knows all about land transfer tax and how it applies in your area. They can also guide you through the details of the Land Transfer Tax Act. A real estate agent can give you a clear estimate of the costs and make sure everything is handled properly at closing so you don’t run into any surprises or costly mistakes. They can also assist with other aspects like negotiating the best terms, managing paperwork, and coordinating inspections. Without these professionals, you could risk miscalculating the tax, missing deadlines, or misunderstanding your obligations, which could lead to delays, extra fees, or even risk losing the sale.
While the land transfer tax can be a significant expense for homebuyers, it is essential to consider it when budgeting for the overall purchase cost. Research the specific land transfer tax policies in your location and consult a REMAX agent and an accountant who can show you how to manage your tax obligations and apply for rebates where applicable.