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In Ontario, if you buy land or an interest in land you are required to pay Ontario’s land transfer tax. Land compromises any buildings, buildings to be constructed and fixtures such as light fixtures, built-in appliances and cabinetry.
Land transfer tax is based on the amount paid for the land, plus the amount remaining on any mortgage or debt assumed as part of the arrangement to buy the land. In some rare cases, land transfer tax is based on the fair market value of the land where a lease can exceed 50 years, land is transferred from a corporation to one of its shareholders; or land is transferred to a corporation, if shares of the corporation are issued.
The rate for the land transfer tax has not changed since 1989. So, how much do you pay?
0.5% of the value of consideration for the transfer up to and including $55,000
1% of the value of the consideration which exceeds $55,000 up to and including $250,000
1.5% of the value of the consideration which exceeds $250,000
2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.
On July 1st, 2010, Ontario will introduce a federally administered Harmonized Sales Tax applicable to most goods and services. The HST will apply to newly constructed homes but not to resale homes.
When do you pay the tax? The land transfer tax is paid at the time the transfer is registered. If the transfer is not registered please visit the Ministry of Revenue http://www.rev.gov.on.ca/en/forms/ltt/pdf/0775.pdf in order to submit a Return on the Acquisition of a Beneficial Interest in Land.
There are few exemptions from land transfer tax. But, if any of the below apply to your situation then you will be exempt:
Transfers from an individual to their family business corporation.
Transfers of farmed land between family members.
Transfers between spouses.
Transfers of a life lease from a charity or non-profit organization.
There is good news for first time homebuyers: you may be eligible for a refund of all or part of the tax! For agreements of purchase and sale entered into before December 14, 2007: the refund only applies on the purchase of a newly constructed home. For agreements of purchase and sale entered into after December 13, 2007: the refund applies to all homes (newly constructed or resale). Applications for the refund must be made within 18 months after the date of the transfer.
$2,000 is the maximum amount of the refund. The refund may counterbalance the land transfer tax ordinarily payable if it is claimed at the time of registration. The refund may be claimed directly from the Ministry of Revenue if not claimed at registration. Finally, no interest is paid on this refund. Phew!
Do you qualify for a refund?
You must be at least 18 years old.
You must occupy the home as your principal residence within 9 months of the date of the transfer.
You cannot have owned a home or an interest in a home prior to this one anywhere else in the world.
All the above applies to your spouse or common law partner as well.
Your lawyer, upon registration, will fill out the appropriate tax statements in the electronic land registration system. The refund will be automatically deducted from the otherwise payable land transfer tax.
If for some reason, your lawyer does not fill out the appropriate statements upon registration you can apply for the refund yourself by submitting the following documents to the ministry:
Completed Land Transfer Tax Refund Affidavit for First-time Home Buyers
Copy of the registered conveyance
Evidence of the amount of tax paid on registration
Copy of the Agreement of Purchase and Sale
Copy of the Statement of Adjustments
If applicable, a copy of the Tarion new home warranty certificate |
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Congratulations, you’ve found your dream home! There is a problem though, the owner of your dream home has to close the deal within a month, and you can’t sell your current property that quickly. Enter bridge financing, your best way to seal the deal. This type of financing is a hefty short-term loan that serves as a link between the period when you own, and are paying for two homes. Present your lender (the same lender you used to secure the mortgage on your current home) with two firm offers, one for your current house and one for your next home. You should be able to obtain financing of 80-90% of the value of the equity in your current home in the form of a bridge mortgage. Use this new mortgage to finance the purchase of your new home and carry the two mortgages during the overlap period before the sale of your current home closes. After your home closes use the proceeds of the sale to pay off the bridge loan, including interest and costs. You also have the option to repay the bridge loan in 6 months to a year. This is a good idea if you need to save a bit to pay off the bridge in its entirety. The trouble with bridge financing is that it can really add up. - Interest on this type of short-term loan is comparatively high, typically the prime rate plus 1-3%.
- There’s a strong possibility you will be required to pay up to 6 months worth of interest in advance for bridge loans that allow you a year or more for repayment.
- It may be necessary to set up and pay for new mortgages on your old home and your new one, and on top of that, use both homes as collateral against the debt.
- Should the deal for your new home fall apart at the last minute, the bank could seize your home if it was used as collateral for the bridge loan. (This is obviously a worst case scenario but you have to be prepared for everything.)
Before considering a bridge loan, assess your situation because sometimes paying the extra costs can mean the difference between purchasing the home of your dreams and missing out entirely. When you’re looking for a new property, one will stand out above all others. If you can’t sell your existing property soon enough, you run the risk of losing out to buyers in an improved financial situation and in this case, a bridge loan makes perfect sense. |
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