Buying a home is one of the most important financial decisions that many of us will make in our lives. As a first-time homebuyer, you have much to consider. In addition to the quality of the home, its location and the purchase price, you should consider the tax liabilities that you will be incurring as a result of the transaction.
What is Land Transfer Tax?
Land transfer tax is a tax that is paid whenever land or an interest in land is purchased in Ontario. The tax is calculated at a graduated rate based on the purchase price of the property and it is paid by the purchaser at the time of closing.
Many Land Transfer Tax Calculators are available online, but it is best to verify your Land Transfer Tax obligations with your lawyer.
Land Transfer Tax Refunds
To ease the financial burden on eligible first-time homebuyers, the Ontario government provides a partial land transfer tax refund. The maximum amount of the refund is $4,000 per purchase. Based on current land transfer tax rates, this refund will fully cover the tax payable on the purchase of a home with a value up to $368,333. If you purchase your home for more than $368,333, you will be liable to pay the remainder of any tax owing.
While this refund may be deducted directly from the amount of tax payable at the time of closing, a purchaser can also apply for it afterwards. However, a qualifying purchaser must apply for the refund within 18 months of the transfer in order to receive it.
Do you Qualify for a Refund?
There are a number of requirements in order to qualify for a refund, namely:
- The buyer must be at least 18 years old.
- The buyer must be a Canadian citizen or a permanent resident of Canada
- The buyer must occupy the home as their principal residence within 9 months of the date of transfer.
- The buyer cannot have ever owned an eligible home, or an interest in an eligible home, anywhere in the world, at any time.
- If the buyer 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 buyer’s spouse. If this is the case, no refund is available to either spouse.
Who is a Spouse?
Please note that a spouse in this context is defined as either of two persons who,
1) are married to each other, or
2) have together entered into a marriage that is voidable or void, in good faith on the part of a person relying on this clause to assert any right, and
3) includes either of two persons who are not married to each other and have cohabited,
a) continuously for a period of not less than three years, or
b) in a relationship of some permanence, if they are the natural or adoptive parents of a child
More than One Buyer?
If there are multiple buyers of the home, the tax refund will be proportionate to the interest acquired by each qualifying individual. As such, the refund will be reduced if one (or more) of the buyers is not a first-time homebuyer.
Let us look at an increasingly common example in order to illustrate this point. Suppose that an adult child decides to buy a home with one of their parents. Assuming that the child is a first-time homebuyer and the parent is not, the refund will only apply to the interest in the home that is being acquired by the child. If the child and the parent buy a home for $500,000 and they each acquire a 50% ownership interest, then land transfer tax will be payable in full on the parent’s 50% interest and the tax owing would be calculated using the value of $250,000 (i.e. 50% of the purchase price).
If you have questions about land transfer tax or if you would like to learn more about the real estate transaction, please contact us.