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A blog post about real estate taxes in Ontario?

Could there BE a more boring topic to read about? And yet, if you’re buying or selling a home, it’s important to understand ALL of the ways that you’ll be taxed. So grab a bowl of popcorn, get comfortable and get reading.

In this blog, we’ll look at:

  • Land transfer taxes
  • Property taxes
  • HST
  • Capital gains taxes
  • Income tax implications
  • Tax implications for non-resident home Buyers and Sellers.

Note: We aren’t accountants, so for specific advice about your personal situation or taxes, talk to an accountant. We can’t help.

Land Transfer Taxes

In Ontario, it’s the Buyer who pays the land transfer tax (not the Seller). Provincial land transfer tax is paid on closing and calculated on a sliding scale, as follows:

Ontario Land Transfer Tax:

  • 0.5% of the value of the property up to and including $55,000
  • 1% of the value which exceeds $55,000 up to and including $250,000
  • 1.5% of the value which exceeds $250,000 up to and including $400,000
  • 2% of the value between $400,000 and $2,000,000
  • 2.5% for amounts exceeding $2,000,000, where the land contains one or two single family residences

If you’re buying in the city of Toronto, you’ll also be subject to a second land transfer tax (sorry).

Toronto Land Transfer Tax

  • 0.5% up to and including the first $55,000
  • 1% of the value which exceeds $55,000 up to and including $250,000
  • 1.5% of the value between $250,000 and $400,000
  • 2% of the value between $400,000 and $2,000,000
  • 2.5% of the value over $2,000,000

If you don’t feel like doing all that math, just use our Land Transfer Calculator.

But there’s good news for first-time Buyers: you may be eligible to receive a refund for all or part of the land-transfer tax – click here for details of the Land Transfer Tax Refund Program.

Toronto Property Taxes

How much are property taxes in Toronto?

Property tax rates in Toronto vary depending on the type of property you own (residential vs. multi-residential vs. commercial) and are set every year (you can see the current tax rates here). Toronto property tax rates include an education tax and a city building fund tax.

The amount of your property tax is calculated on the phased-in property assessment value of your property, determined by MPAC (Municipal Property Assessment Corporation). You can read all about how MPAC determines the value of your property here.

For example:

MPAC has assessed your home at $800,000 for 2018. Based on 2018 Toronto property tax rates, you would owe:

Property tax: $800,000.00 * 0.004632369 = $3,705.90

Education tax: $800,000.00 * 0.0017 = $1,360.00

City Building Fund: $800,000.00 * 0.000022685 = $18.15

Total Taxes*= $5,084.05

Good news: MPAC property assessments don’t really reflect current market value, so while you may have paid $1,500,000 for your house, MPAC probably has you paying taxes on a much lower assessed value.

You can check how much property taxes are by using the City of Toronto property tax calculator

When are Property Taxes Due?

If you enrol in their pre-authorized tax program, you can choose to pay in two instalments (March and July); 6 instalments (March, April, May, July, August and September); or in 11 instalments (due every month except January). Many people roll in their property taxes with their mortgage payments, and their lender takes care of the payment directly.

Special Property Tax Circumstances

New Homes and Condos – Tax Implications

If you’re buying a brand new home, you can usually expect to pay more taxes than you would on a resale home, because MPAC will value the property using current market activity, while a resale home will be subject to a phased-in value that doesn’t generally reflect real market value.

Renovated or Flipped Homes – Tax Implications

If your home has been significantly renovated or flipped, you will likely be re-assessed for tax purposes and your taxes will go up (sometimes by a lot). True story: we got a re-assessment notice within 2 days of moving into our home. Welcome home.

Homes That Have Not Yet Been Assessed – Tax Implications

MPAC usually assesses newly built homes within 6 months, so if you’re buying a home that has not yet been assessed (eg. a condo that’s only been occupied for a few months), that means that no property taxes have been paid to the city. Your REALTOR will insert a clause into your offer to ensure that you are not stuck with the builder or previous owner’s tax bill.

HST

We could probably write an entire novel on HST and real estate in Ontario, but here are the basic HST facts you should know:

Resale Homes

  • HST is NOT payable on resale properties in Ontario
  • If a residential property is used partially as commercial, HST would be payable on the percentage that was used as commercial
  • HST may be payable on a highly renovated home (but rebates may apply)

Vacant Land

  • HST is not payable on vacant land (personal use only)

Newly Constructed Houses and Condos

  • HST applies to new construction homes
  • Federal and provincial rebates are available in some cases
  • Most builders will factor the HST and the HST rebate into the purchase price of the home, though some will not, so if you’re buying pre-construction, make sure to ask
  • To qualify for the rebate from the builder, the home must be the primary residence of the purchaser or one of their immediate blood-relatives
  • If the purchaser is an investor, they will not qualify for the rebate automatically. They will have to pay the builder the full amount of the HST on closing and can apply for a rebate after they’ve signed a one-year lease agreement with a tenant.

Commercial Properties

  • HST is payable on commercial properties

REALTOR Commissions and Legal Fees

  • All REALTOR commissions are subject to HST
  • HST is payable on real estate legal fees

Capital Gains Tax

The good news: you don’t have to pay any capital gains taxes on the increase in value on your principal residence. For the CRA, your principal residence can be a house, condo, cottage, apartment, trailer, mobile home or houseboat.

But if you’re selling an investment property (or one that was partially rented to tenants), you will be subject to paying capital gains tax. Taxes are payable on 50% of the gain in value and are added to your income.

Example: Investment property purchased for $500,000 and sold for $650,000. Increase in value: $150,000. Taxes must be paid on 50% of the gain, or on $75,000 in this example. That means $75,000 would be added to your total income, so if you’re in the highest tax bracket, you’d be paying additional income tax on $75,000. Ouch!

Income Tax

If you’re in the business of flipping houses, the CRA will want a piece of the action in the form of income tax. If flipping is your main gig or forms a substantial part of your income, the CRA will consider it active income and you’ll be taxed at the usual income tax rates.

Non-Resident Taxes

Home Buyers

Non-resident Buyers who do not have Canadian citizenship who are buying a home in Toronto (and the area around Toronto, known as the Golden Horseshoe) are required to pay a 15% Non-Resident Speculation Tax on closing. You can read more about the non-resident speculation tax here.

Home Sellers

When it comes to selling a home, there are special tax implications for non-residents too. The Canada Revenue Agency defines a non-resident as someone who:

  • normally, customarily, or routinely lives in another country and is not considered a resident of Canada; or
  • does not have significant residential ties in Canada; and
  • lives outside Canada throughout the tax year; or
  • stays in Canada for less than 183 days in the tax year.

Note: there are a few other exceptions listed on the CRA website.

In most cases, non-residents are subject to tax on any income or gains resulting from the sale of a taxable Canadian property, including residential homes, condos, vacation properties or land. When a non-Canadian resident sells a property, the Buyer of the property must withhold and remit a portion of the purchase price to the Canada Revenue Agency (CRA). Generally, this amount is 25% of the gross selling price.

Alternatively, a Certificate of Compliance related to the sale of the property can be filed and approved by the CRA to reduce or eliminate the withholding taxes. Upon filing this Certificate of Compliance, the 25% withholding tax required is calculated on the gross sales proceeds net of the purchase cost of the property (or in other words, the net profit).

Also, non-residents are required to file a Canadian tax return by April 30 following the year they sold their property. Generally, upon filing a tax return, part of the withholding tax is refunded to the Seller as the 25% withholding tax is usually a lot higher than the actual taxes owing. At this point, you can also claim expenses like legal fees and commissions against the income from the sale.

Note: we can’t give advice on non-resident taxes, so talk to your accountant.

 

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