Land Transfer Tax: Benefit of Prepayment

By Puneet Shroff

Buying a property can be an exhilarating experience, but it also involves numerous taxes and fees. One that often goes unnoticed is the Land Transfer Tax (“LTT”) under the Land Transfer Tax Act. This article provides an understanding of Ontario's Land Transfer Tax, its calculation, payment process, potential exemptions, and the benefits of pre-paying the tax.

What is Land Transfer Tax?

Land Transfer Tax is a mandatory fee levied by the government under the Land Transfer Tax Act when the ownership of a property changes hands. This tax is usually calculated based on the property’s purchase price and must be paid by the buyer at closing. In Ontario, two types of LTTs exist: provincial and municipal. Both contribute to funding essential public services like roads, schools, hospitals, and parks.

In Ontario, the responsibility of paying the LTT lies with the buyer, regardless of whether it's a residential or commercial property. This tax must be paid in full before the property can be registered in the new owner's name. If you're buying a property with another individual, both parties are responsible for paying their proportionate share of the tax as may be set out in a separate co-ownership agreement.

Calculating Land Transfer Tax

Ontario's provincial LTT is calculated using a sliding scale considering the property’s value. The tax is typically calculated as a percentage of the purchase price.

Example

Let's say you purchase a home for $500,000. The tax would be calculated as follows:

• The first $55,000 would be charged at 0.5%, amounting to $275.
• The next $195,000 would be charged at 1%, adding $1,950.
• The following $150,000 would be charged at 1.5%, adding $2,250.
• The remaining $100,000 would be charged at 2%, adding $2,000.

Hence, the total LTT payable is $6,475. If the property was situated in Toronto, there would be an additional LTT for the City of Toronto, which is due to go up as of January 1, 2024.

Land Transfer Tax Exemptions and Rebates

Certain exemptions and rebates are available to alleviate the financial burden of the LTT. The most common one is for first-time homebuyers.

First-Time Homebuyers: First-time homebuyers in Ontario may be eligible for a refund of all or part of the LTT with a rebate of up to $4,000 for the provincial LTT and up to $4,475 for the City of Toronto LTT.

Exemptions for Agricultural Land: Agricultural landowners can benefit from rebates and exemptions to manage LTT costs. The Family Farm Transfer Exemption allows a full exemption when a family member takes ownership of a farm property primarily used for farming purposes.

Exemptions for Commercial Properties: Commercial property transactions have specific LTT considerations. Sellers may be eligible for exemptions or rebates when transferring property to a corporation as part of a reorganization, amalgamation, or selling property to registered charities or non-profit organizations.

Transfer Between Family Members: Transfers as gifts between spouses or parents and children may qualify for exemptions.

When and How to Pay Land Transfer Tax?

LTT is payable when the transfer is registered; the LTT is automatically calculated in the Teraview system and debited from the lawyer’s trust account. However, there are benefits to pre-paying the LTT well in advance of closing. The effect of pre-paying the LTT is that the purchase price is not disclosed on the face of the Transfer. The process to pre-pay the LTT includes either attending at the Ministry of Finance in Oshawa or couriering in advance of closing the following documents:

1. Authorizing or Cancelling a Representative forms, completed by each transferee;
2. copy of the Document (Transfer) in preparation;
3. cheque for land transfer tax and the NRST, if applicable (certified, if not drawn on the solicitor's trust account);
4. copy of the Agreement of Purchase and Sale, with all schedules attached;
5. copy of the draft Statement of Adjustments;
6. Land Transfer Tax Affidavit;
7. if the value of the consideration is based on the fair market value of the land, any appraisals or documentation that is evidence of the fair market value of the land; and
8. a cover letter requesting the prepayment of land transfer tax.

Upon payment of the LTT, the Transfer will be stamped as being paid. A code will be provided by the Ministry of Finance which will ensure that during closing, there will be no LTT payable. Please note that there are other ways that the price can be discovered, but at least on the face of it, the price of it is hidden.