Land transfer and property tax in Ontario for first-time homebuyers

Land transfer and property tax in Ontario for first-time homebuyers

Here’s a word no one likes, but we all know and should understand fully, especially when it comes to purchasing a property in Toronto. Do you know, for example, the difference between land transfer and property tax? Often times we have clients telling us they didn’t know about one of the other. This is the reason why we decided to write this post.

Property taxes

On that checklist of costs that come with the costs of owning a home, property taxes are one of the items. They are a very important source of revenue for municipal governments, as they help support and pay for all the services and infrastructure where one lives.  These taxes vary from municipality to municipality – as they are determined by the local government – and are based on what the government established as a tax rate and the value of your property.

How to calculate a property tax?

In Ontario, the Municipal Property Assessment Corporation assesses the property – taking into account how old the house is, the size of the house and the lot, where it is located, and the quality of the construction. Then, the tax rate is applied to the assessed property value. Don’t forget that if you are in the GTA, you have a local and regional government, which means you have two tax rates.  On top of that, every municipal government has also an education tax rate that is applied to the sum.

What if the value of the home increases dramatically?

In this case, the Municipal Property Assessment Corporation will use the “phase-in program”. This is how it works: the value is gradually phased each year until it reaches the full assessed value. If it drops, your assessed value will also drop together with the property taxes. The value is not based on your property alone, but how it compares to the average property where you live.

Land Transfer Tax

This tax is applied every time some buys a home in Ontario.  In Toronto, there are two – the province’s land transfer tax and the municipal land transfer tax.  This can amount to tens of thousands of dollars.  Again, the value of the property will determine the tax rate.

Important to know, there is a land transfer tax rebate for first-time homebuyers equal to the full amount of their land transfer tax, up to a maximum of $4,000 to help offset the cost. There is also a rebate to cover Toronto Land Transfer Tax for first-time buyers — equal to the full amount of their municipal land transfer tax, up to a maximum of $4,475.