What Happens If You Understate the Purchase Price to Pay Less Land Transfer Tax in Ontario?
Understating the price on a transfer can expose you to a criminal fine, a separate penalty and a denied tax benefit. Ontario land transfer tax is normally calculated on the amount paid for the land, including any mortgage the buyer assumes. The Act defines the value of the consideration as the gross sale price plus any benefit of whatever kind conferred as part of the arrangement.
Making a false or deceptive statement, such as understating the price, is an offence. The fine is at least the greater of $1,000 or 50% of the tax that should have been paid, up to twice that tax, and a court can also impose up to two years of imprisonment. Where tax goes unpaid through fraud or wilful default, the Minister may also assess a penalty of the greater of $500 and 25% of the unpaid tax. A general anti-avoidance rule lets tax consequences be set to deny the benefit of an avoidance transaction.
Lawful ways to pay less or nothing do exist, such as a genuine gift where no consideration of any kind passes. Rates and exemptions may change, and Toronto's municipal tax is separate, so confirm your situation with a lawyer.
Key takeaways
- Land transfer tax counts the gross price, any assumed mortgage and any other benefit conferred as part of the deal, not just the number written on the transfer.
- Understating the price is an offence with a fine of at least the greater of $1,000 or 50% of the tax owed, up to twice that tax, and up to two years of imprisonment.
- Separate penalties and the general anti-avoidance rule can apply on top of the fine, including a penalty of the greater of $500 and 25% of tax unpaid through fraud or wilful default.
- Lawful routes exist, such as a genuine gift with no consideration or a change between joint tenancy and tenancy in common, but each depends on the facts.