Provincial Land Transfer Tax
Most home purchases in Ontario require payment of provincial land transfer tax (LTT). As the buyer, you will be responsible for providing the tax amount to your lawyer, and your lawyer will ensure funds are provided to the Ministry of Finance on your behalf. The exact amount owing is dependent upon the purchase price, and for transactions closing after January 1, 2017, it is calculated according to the following formula:
amounts up to and including $55,000: 0.5%
amounts exceeding $55,000, up to and including $250,000: 1.0%
amounts exceeding $250,000, up to and including $400,000: 1.5%
amounts exceeding $400,000: 2.0%
amounts exceeding $2,000,000, where the land contains one or two single family residences: 2.5%.
At Doormat, your lawyer will calculate the LTT owing and advise you the amount you need to provide to complete your transaction. Depending on your situation, you may be exempt from payment of LTT for several reasons. Your Doormat lawyer will help you determine whether you are eligible for any exemptions. The most common exemption applies to first-time home-buyers, providing a partial exemption of up to $4,000.00 if the purchaser(s) meet certain conditions. To qualify for the exemption:
The purchaser must be at least 18 years old.
The purchaser must occupy the home as their principal residence within nine months of the date of transfer.
The purchaser cannot have ever owned an eligible home, or an interest in an eligible home, anywhere in the world, at any time.
If the purchaser entered into an agreement of purchase and sale before December 14, 2007, the home must be a newly constructed home and the purchaser must be eligible for the Tarion New Home Warranty.
If the purchaser has a spouse, the spouse cannot have owned an eligible home, or had any ownership interest in an eligible home, anywhere in the world, while he or she was the purchaser's spouse. If this is the case, no refund is available to either spouse.
Municipal Land Transfer Tax
If the property you are buying is located in the City of Toronto, an additional Municipal Land Transfer Tax (MLTT) will apply. The formula for calculating the MLTT is the same as the formula for calculating the provincial land transfer tax, so essentially, Toronto homebuyers will pay double the land transfer tax of homebuyers in other municipalities or counties. Currently, only the City of Toronto charges an additional municipal tax. There are exemptions and partial exemptions to payment of the MLTT as well, including for first-time homebuyers
Harmonized Sales Tax
HST typically does not apply to the purchase of used residential property in Ontario, but there are certain transactions to which HST will apply. From the buyer’s perspective, HST will apply to the purchase of a newly-built home. HST also applies to the purchase of a “substantially-renovated home,” meaning a resale home that is essentially stripped down to the studs and 90% rebuilt. Finally, HST applies to commercial properties, as well as to the commercial elements of a mixed-use commercial and residential property. Farm properties, for example, where the land is worked and the owner derives an income from use of the land, will have HST applicable to the value of the farmland - but not to the residence on the farm or the immediately-surrounding non-farming land.
Buyers of new-build properties should be aware that they may be eligible for a partial refund of the HST amount owing, up to a maximum of $24,000.00, but the property must be used as the primary place of residence by the purchaser or their immediate family (meaning people related by blood, marriage, common-law partnership, or adoption) after closing.
Where the Buyer is a Non-Resident
In Ontario, the Non-Resident Speculation Tax (NRST) may apply on the purchase or acquisition of an interest in residential property located anywhere in Ontario by individuals who are foreign nationals (individuals who are not Canadian citizens or permanent residents of Canada) or by foreign corporations or taxable trustee at a rate of 20% of the purchase price.
The NRST applies to the transfer of "designated land", which is land that contains at least one and not more than six single family residences. Examples of land containing one single family residence include a detached house, a semi detached house, a townhouse or a condominium unit. Examples of land containing more than one single family residence that are subject to the tax include duplexes, triplexes, fourplexes, fiveplexes and sixplexes.
The NRST does not apply to other types of land such as land containing multi residential rental apartment buildings with more than six units, agricultural land, commercial land or industrial land.
Each transferee is jointly and severally liable for any NRST payable. If a foreign entity or taxable trustee does not pay the NRST, the other transferees will be required to pay the tax. This applies even if the other transferees are Canadian citizens, permanent residents of Canada or non-foreign corporations. There are certain exemptions to the NRST, including for refugees and certain immigrants.
Where the Seller is a Non-Resident
When a non-Canadian resident sells a property, the Buyer of the property must withhold and remit a portion of the purchase price to the Canada Revenue Agency (CRA). Generally, this amount is 25% of the gross selling price.
According to the Canada Revenue Agency (CRA), a seller is considered a non-resident of Canada if they:
Normally, customarily, or routinely live in another country and are not considered a resident of Canada; or
Do not have significant residential ties in Canada; and
live outside Canada throughout the tax year; or
stay in Canada for less than 183 days in the tax year.
The Seller must disclose their non-resident status when asked during the closing process, and your lawyer will make sure the appropriate tax amount is remitted to the government.
Taxes Applicable to the Sale of a Home
Harmonized Sales Tax
Again, note that HST is generally not applicable to the sale of a used residential property. However, the vendor’s use of the property can result in HST eligibility. For example, where the property is a residential property but contains a portion of non personal use vacant land, the land will likely be subject to HST.
HST also applies to services related to your sale, including legal fees and disbursements, the commission payable to any Realtors involved in your sale transaction, and the cost of a condominium status certificate.
Capital Gains Tax
If the sale property is not your primary residence, you will be responsible for paying capital gains tax on half of the increase in value from the time you purchased the property until the date you sold it, eligible at your marginal tax rate. The exact calculation of the tax can be difficult to determine, so a consultation with a tax accountant who can provide advice specific to your situation is recommended.