What is a Land Transfer Tax in Canada?

Here we explain what this tax is, who pays it, how it’s calculated and more.

Land Transfer Tax is a tax that governments in Canada levy when ownership of a property changes from one owner to another.

Purpose of Land Transfer Tax

Land transfer tax is a provincial tax levied when purchasing a property in Ontario. It serves as a significant revenue source for the provincial government, funding various public services and infrastructure projects.

Basis for Calculation

The tax is calculated based on the property’s purchase price or, in certain cases, its fair market value at the time of transfer.

Authorities That Collect Land Transfer Tax

In Ontario, the provincial government collects the land transfer tax. Additionally, municipalities like Toronto impose their own municipal land transfer tax (MLTT) on property transactions within their jurisdiction.

Who Pays the Land Transfer Tax

The buyer is responsible for paying both the provincial and, if applicable, the municipal land transfer taxes at the time of property transfer.

Property Types Covered

Land transfer tax applies to various property types, including: residential homes; commercial buildings; vacant land; unfinished structures; and fixtures and any stake or interest in the land or its improvements.

How the Tax is Calculated

Example: Provincial Land Transfer Tax (Ontario)
Ontario’s land transfer tax is calculated using a graduated scale:

• Up to $55,000: 0.5%
• $55,000.01 to $250,000: 1.0%
• $250,000.01 to $400,000: 1.5%
• $400,000.01 to $2,000,000: 2.0%
• Over $2,000,000: 2.5%

Municipal Land Transfer Tax (Example: Toronto)

Toronto imposes an additional MLTT on properties purchased within the city:

• Up to $55,000: 0.5%
• $55,000.01 to $250,000: 1.0%
• $250,000.01 to $400,000: 1.5%
• $400,000.01 to $2,000,000: 2.0%
• Over $2,000,000: 2.5%
• Over $3,000,000 and up to $4,000,000: 3.5%
• Over $4,000,000 and up to $5,000,000: 4.5%
• Over $5,000,000 and up to $10,000,000: 5.5%
• Over $10,000,000 and up to $20,000,000: 6.5%
• Over $20,000,000: 7.5%
  

Items Included in the Value for Tax

The land transfer tax is typically calculated based on the property’s purchase price. However, in certain situations, the tax may also include:

• Assumed liabilities
• Benefits provided to the seller
• Soft costs
• Costs of improvements or upgrades

Using Fair Market Value

In specific cases, such as long-term leases exceeding 50 years or transfers between corporations and shareholders, the land transfer tax may be calculated based on the property’s fair market value instead of the sale price.

Exemptions

Certain exemptions may apply to land transfer tax, including:

• Transfers between spouses
• Transfers to or from a corporation or its shareholders
• Transfers involving certain types of trusts

These exemptions are subject to specific criteria and should be verified with legal counsel or the appropriate authorities.

First-Time Homebuyer Rebates

Ontario offers a land transfer tax rebate for first-time homebuyers:

• Maximum rebate: Up to $4,000
• Eligibility: Must be a Canadian citizen or permanent resident and have never owned a home or an interest in a home anywhere in the world
  

In Toronto, first-time homebuyers may also qualify for a municipal rebate:

• Maximum rebate: Up to $4,475
• Eligibility: Must meet the same criteria as the provincial rebate and purchase a home within Toronto
  

Role as a Closing Cost

Land transfer tax is a mandatory closing cost that buyers must pay on or before the property’s closing date. It cannot be included in the mortgage amount and should be budgeted for accordingly.

Provincial and Municipal Variations

Each province and municipality in Canada may have different land transfer tax rates and structures. For instance, Alberta and Saskatchewan do not charge land transfer tax, while Ontario and Toronto have their own respective rates and rules.

Planning and Compliance

Understanding the land transfer tax rules is crucial for buyers to accurately estimate the total cost of purchasing a property and ensure compliance with all tax obligations.