Land Transfer Tax Impacting Home Buying Decisions

Many prospective homebuyers often think that the only costs they will incur are the home’s asking price and interest on the mortgage. However, there are additional costs involved, especially in certain jurisdictions across the country. Mortgage origination fees, closing costs, taxes, and other charges are the norm. And when buying a home in the Toronto real estate market, the land transfer tax is a hefty levy you must budget for – and the municipal portion of the tax is due to rise as of January 1, 2024.

Regardless of the property type, all homebuyers will be subjected to a land transfer tax on closing.

There are five tax brackets that you need to be aware of:

• Up to $55,000: 0.5 per cent
• Up to $250,000: one per cent
• Up to $400,000: 1.5 per cent
• Up to $2 million: two per cent
• More than $2 million: 2.5 per cent

So, for example, if you are buying a $950,000 detached house in the downtown core, be prepared to dole out nearly $31,000. The good news is that you will receive a rebate if you are a first-time homebuyer. So, as another instance, if you are purchasing a $700,000 condo suite, the land transfer tax will be nearly $21,000, but the rebate will reduce it to below $13,000.

Regardless of any tax brackets or rebates, new research has found that the land transfer tax is a barrier to entry for many households attempting to achieve the dream of home ownership.

Land Transfer Tax Impacting Home-Buying Decisions

Is the land transfer tax impacting your home-buying process?

According to a new survey conducted by Leger on behalf of RE/MAX Canada, more than one-quarter of Canadians (28 per cent) say that the land transfer tax has affected their decision to participate in the real estate market. Young Canadians are most impacted by the levy, with 40 per cent of Generation Z and 35 per cent of millennials reporting that the land transfer tax had a role in their journey toward home ownership. The penalty had less of an impact on older generations, including Generation X (26 per cent) and baby boomers (21 per cent).

Ultimately, this has eroded housing affordability at a time when home ownership is becoming out of reach for many younger households.

Recent data highlight that detached home sales skyrocketed in York Region in the second quarter of 2023, rising more than 100 per cent from the first quarter. One of the reasons? Buyers in this part of the housing market do not face the municipal land transfer tax.

Because many facets are pricing younger families out of the housing market, policymakers are exploring various mechanisms to bolster homebuying opportunities, including the land transfer tax.

Are Changes Coming?

The City of Toronto recently published its revenue tools report assessing different property tax approaches. Officials contend that property tax is a more stable and fair form of taxation for city hall than the land transfer tax. When North America’s fourth-largest city first introduced the first-time land transfer tax rebate, it was introduced to mirror the average price for a residential property in Toronto.

In 2008, the average price for a home in the city was $400,000. Believe it or not, officials have not raised this threshold, meaning that very few buyers qualify for this rebate since the going price for a house is north of $1 million and about $750,000 for condominiums.

That said, the Toronto Region Real Estate Board welcomes any proposal that advances the opportunity for more people to enter the housing market.

“Our position has always been that the concept of a Land Transfer Tax doesn’t benefit homebuyers, due to the unfair nature of the tax which has to be paid upfront. With the City raising MLTT rates for the higher-end housing market as a revenue tool, it must also consider helping first-time home buyers who are struggling to buy a property,” said TRREB President Paul Baron in a statement. “Council’s decision to approve a graduated increase of the MLTT on properties over $3 million may impact our housing challenges and supply shortage in a negative way by deterring move-up buyers from freeing up supply.”

Not only Toronto is looking at making changes to property tax policy.

The Real Estate Board of Greater Vancouver (REBGV) is urging the province of British Columbia to abandon the property transfer tax, or PTT, on any home that costs under $755,000 for both new and resale.

Like Toronto, it is challenging to come across any dwelling in Vancouver priced below $800,000.

“You could look at this and say, ‘Should there even be a threshold? If we’re talking about getting first-time buyers into the market, why does it really matter?’ We’re trying to be reasonable and give the government something they can work with,” said Andrew Lis, the director of economics of the REBGV.

The real estate association also suggests establishing a provincial rebate program for the GST mandated on new rental construction and an “ultra-low-cost” loan program for rental property developers.

Meanwhile, there is skepticism that the B.C. government would consider abolishing the levy since it generated more than $2 billion in revenues from this tax in the current fiscal year.