Does land transfer tax apply when a lender takes a property through power of sale or foreclosure?
When a lender sells a property through power of sale in Ontario, the ultimate buyer of that property is generally responsible for land transfer tax in the same way as any other purchase. The buyer pays LTT based on the purchase price at closing, just as they would in a conventional arms-length transaction.
The power-of-sale process itself — the lender enforcing its mortgage security and taking possession — does not typically constitute a taxable land transfer. However, when the lender then sells the property to a third-party purchaser, that sale is a land transfer subject to LTT.
If you are a first-time buyer purchasing a property through a power-of-sale transaction, you may still be eligible for the first-time buyer LTT rebate, provided you meet all the other eligibility requirements. Buyers acquiring properties in power-of-sale situations are sometimes unaware that the same LTT obligations apply — consult with a lawyer before closing.
Key takeaways
- The ultimate buyer in a power-of-sale transaction pays LTT at closing.
- The lender's enforcement action itself is not typically a taxable transfer.
- First-time buyers acquiring through power of sale may still qualify for the rebate.
- Standard LTT obligations apply; do not assume power-of-sale deals are exempt.