How do property taxes factor into my closing costs in Ontario?

Property taxes are not a closing cost in the traditional sense, but they appear as a financial adjustment on your statement of adjustments — a document your lawyer prepares before closing. Because property taxes are billed annually but closing happens mid-year, the taxes need to be fairly split between the seller and the buyer for the period each party owns the property.

If the seller has prepaid property taxes for a period that extends beyond the closing date, you as the buyer owe the seller a credit for the unused portion. If taxes are outstanding and not yet paid, the seller owes you a credit. Either way, the adjustment shows up as a line item on your statement of adjustments that either increases or decreases the funds you need to bring to closing.

Your lawyer calculates the property tax adjustment based on the current year's tax bill and the closing date. In some situations — particularly early in the year before the final tax bill is set — the calculation uses the prior year's taxes as an estimate, with a subsequent reconciliation. It is worth reviewing your statement of adjustments with your lawyer so you understand every line item before funds are exchanged.