All land purchases in Ontario require the payment of land transfer tax. If you are a first-time homebuyer of an eligible home, you may be able to claim a refund of all or part of the tax.
This raises two questions:
First, what is a first-time buyer?
Someone who has never owned a home or an interest in a home anywhere in the world in their lifetime. If you have ever owned a home, you are not eligible for a refund. The method by which you acquired the home (whether it be by purchase, gift, inheritance, etc.) is irrelevant. In addition, a person can never “requalify” as a first-time homebuyer for Land Transfer Tax purposes. There is no period of time after which the clock “resets” and a person becomes once again a “first-time buyer” and eligible for the Land Transfer Tax Rebate. The rule regarding land transfer tax is different from other federal programs for first-time homebuyers where the clock does indeed “reset” after a period of time.
Second, what is an “eligible home”?
Simply put, an eligible home is a property occupied as your principal place of residence within a period of 9 months from the date it was purchased. Eligible homes include detached and semi-detached dwellings, townhouses, condominiums, duplex, triplex and fourplex, mobile homes and pre-fab (pre-fabricated) homes. The purchase of shares in a housing cooperative, will also qualify the first time-buyer to a refund, provided that the shares provide the buyer with the right to live in one of the housing unit owned by the Corporation, as their principal place of residence.
There are additional criteria which must be met in order to be eligible to claim the first-time homebuyers rebate of land transfer tax. You must be at least 18 years of age and if you are a spouse, your spouse cannot have owned a home or an interest in a home anywhere in the world while he or she was your spouse. The term “spouse” includes two persons who (a) are married to each other or (b) who have cohabitated continuously for a period of 3 years, or (c) are in a relationship of some permanence, if they are the natural or adoptive parents of a child. As of January 1, 2017, the refund program is restricted to Canadian citizens and permanent residents of Canada.
For any purchase or transfer of property occurring after January 1, 2017, the maximum amount of the refund is $4,000. Land transfer tax is calculated based on the value of consideration (most often this is the purchase price) for eligible homes. Generally speaking the tax rates are as follows:
- Amounts up to and including $55,000 – 0.5%
- Amounts exceeding $55,000, up to and including $250,000 – 1%
- Amounts exceeding $250,000, up to and including $400,000 – 1.5%
- Amounts exceeding $400,000 – 2%
- Amounts exceeding $2,000,000, where the land contains one or two single family residences – 2.5%
The cut-off to maximize the $4,000 rebate for first-time homebuyers would be a purchase price (or consideration) of $368,000. For purchases that exceed this purchase price, some amount of Land Transfer Tax will be payable.
There is a time limit to apply for the refund. A qualifying purchaser must apply for the refund within 18 months after the date of registration of the transfer of title. However, as most transfers of title these days are completed using electronic registration, qualifying purchasers receive the refund of Land Transfer Tax at the outset of the transaction, as opposed to applying for the refund after the transaction has completed. This means that if you are eligible for the Land Transfer Tax refund, you either do not pay Land Transfer Tax at all on your purchase, or you will pay a reduced amount on closing.
For more information about the Land Transfer Tax payable on your upcoming transaction, and to determine if you qualify for the Land Transfer Tax refund as a first-time home buyer, please talk to your real estate lawyer.
This Blog is provided as an information service by Rasmussen Starr Ruddy LLP. It is distributed with the understanding that it does not constitute legal advice or establish a solicitor-client relationship by way of any information contained herein. The contents are intended for general information purposes only and under no circumstances can be relied upon for legal decision-making. Please consult with us and obtain a written opinion concerning the specifics of your particular situation.