Avoid the Toronto Municipal Land Transfer Tax, Find Out How!

November 6th, 2007 Categories: First-Time Home Buyers, Home Buyers, News Wire, Taxation Nation

Despite the opposition of the Toronto Real Estate Board (TREB), concerned local real estate agents and many others, Toronto City Council has approved a municipal land transfer tax that will be levied on top of the provincial land transfer tax. This tax comes into effect as of February 1, 2008.

However, as a result of this strong position, City Council was compelled to make several amendments to the original proposal. Amendments include a reduced rate, grandfathering for certain transactions (those entered into on or before December 31, 2007) and rebates for first-time buyers of new and resale homes. Hurrah … sort of!

Although the City has not yet provided complete details on how the tax is to be implemented, here is what I know to date on how this tax will work. Of course, any clients with concerns and/or specific questions as to how this tax will affect their upcoming closings should consult with their lawyers.

Toronto Home Buyers Crunch the Numbers

These are the rates to be applied for residential purchases:

0.5% of the amount of the purchase price up to and including $55,000, plus

1% of the amount between $55,000 and $400,000, plus

2% of the amount above $400,000.

For commercial/industrial purchases:

0.5% of the amount of the purchase price up to and including $55,000, plus

1% of the amount between $55,000 and $400,000, plus

1.5% of the amount between $400,000 and $40 million, plus

1% of the amount above $40 million.

No time to do math? An easy-to-use residential calculator is available at www.nohomebuyingtax.com.

Toronto City Council Grandfathers Existing Home Purchases

Timing is everything when it comes to avoiding this second land transfer tax. It comes down to this: When Did You Buy and When Are You Closing? Quote_municipal_land_transfer_tax_rate

A grandfathered transaction is a deal that is entered into on or before December 31, 2007. These buyers will receive a full rebate of the municipal land transfer tax, regardless of the closing date; however, the date your deal closes determines whether you are charged then rebated the tax, or not charged the tax. The important dates to keep in mind are:

Buyers with a deal entered into on or before December 31, 2007 with a closing date before February 1, 2008 will not be charged the municipal land transfer tax.

Buyers with a deal entered into on or before December 31, 2007 with a closing date on or after February 1, 2008 will be charged the municipal land transfer tax, which will then be rebated by the City of Toronto.

Teranet will collect the tax for the City of Toronto. Once the grandfathering policy is reflected in Teranet’s collection system, grandfathered transactions will be exempt from the municipal land transfer tax at the time of registration. The City has indicated these changes will be implemented in the Spring of 2008.

What If My Toronto Home Isn’t Grandfathered?

If you enter into an accepted offer after December 31, 2007, these are your important dates:

Buyers with a deal signed after December 31, 2007 with a closing date before February 1, 2008 will not be required to pay the municipal land transfer tax.

Buyers with a deal signed after December 31, 2007 with a closing date on or after February 1, 2008 will be required to pay the full municipal land transfer tax.

Toronto Tax Relief for First-Time Home Buyers

I’m delighted that first-time home buyers (new and resale) will receive a rebate of the municipal land transfer tax of up to $3,725. This equals a 100% rebate on homes purchased for up to $400,000. According to the City of Toronto, for homes valued at greater than $400,000 the buyer would be taxed according to the rates above and receive a rebate of $3,725.

Once the first-time home buyer policy is reflected in the Teranet collection system (targeted for the Spring of 2008), first-time buyers will be exempt at the time of registration. Until that time the tax will be charged, which will then be rebated by the City of Toronto.

Why Pay Tax If You Don’t Have To?

For any of my buyers waiting for the signal to buy, this just might be it. Don’t pay more land transfer taxes than necessary. The market remains balanced (good for both buyers and sellers), mortgage financing is available for those who qualify, and interest rates are still manageable. As that well-known commercial goes, “Save Your Money”.