Disbursements on an Ontario Real Estate Closing: What Gets Charged

When your lawyer sends the closing account, you will see a legal fee and then a list of other amounts, often called disbursements. They can add up, and it is natural to wonder what each one is and whether any of them are optional.

This article explains how disbursements differ from legal fees, walks through common ones for buyers and sellers, and gives you questions to ask. Actual items depend on your transaction, so confirm details with your lawyer.

Fees versus disbursements

A legal fee pays for your lawyer's work, such as reviewing the agreement, searching title, preparing documents and handling the closing. A disbursement is an out-of-pocket cost your lawyer pays to a third party for your transaction, such as a government office or an insurer. The lawyer generally collects the money from you and passes it on.

The difference matters for tax. HST at 13% applies to taxable services connected with a sale, such as legal fees. Whether HST or other tax applies to each particular disbursement depends on what it is, so ask your lawyer to explain any line you do not recognize.

Common disbursements for a buyer

The largest buyer item is land transfer tax. The person who tenders the conveyance for registration pays it on the value of the consideration, and it is payable when the conveyance is tendered or before. That is why your lawyer asks for the funds before closing. The provincial rates run from 0.5% on the first $55,000 up to 2.0% above $400,000, with 2.5% on the portion above $2,000,000 for land with one or two single-family residences.

• Land transfer tax, payable when the conveyance is tendered for registration or before
• Title insurance premium, if a policy is purchased; residential title insurance can be bought through a lawyer, a title insurance company or an agent or broker
• Registry searches and copies of documents, for which the Province lists set fees
• Condominium status certificate, capped at $100 including all applicable taxes
• Courier, document and similar incidental charges, which vary by firm

If you qualify as a first-time buyer, a refund of up to $4,000 may apply, and you claim it within 18 months of registration. Ask your lawyer how that will be handled on your file.

Common disbursements for a seller

A seller does not pay land transfer tax on a sale. Seller costs are commission, HST on commission, legal fees and disbursements, mortgage payout or penalty, and adjustments.

If you have a mortgage, how it is paid out and discharged on closing depends on your situation, so it is worth confirming the process with your lawyer. Paying off a whole mortgage early, including because of a sale, can trigger a prepayment penalty. The penalty is usually the higher of three months' interest or the interest rate differential.

If a lender cannot be found or a proper discharge cannot be obtained without undue delay, the court may permit payment into court and order the mortgage discharged. This is unusual and needs legal advice.

Sales of used owner-occupied homes by individuals are usually exempt from GST/HST, so no HST is charged on the sale price of a typical resale. Sellers should still report a principal residence sale on their tax return.

Which ones can you avoid?

Even where an item is unavoidable, you can still ask what the exact amount is and what it was for.

What to ask and do next

• Ask for a written estimate that separates legal fees, HST and disbursements.
• Ask which disbursements are government charges and which are charged by your lawyer's firm.
• Compare the registry and status certificate amounts with the published figures.
• Confirm in writing how the first-time buyer refund will be handled, if it applies.
• If selling, ask your lender early about payout and any prepayment penalty.
• Keep your final account and receipts for your records.

If a charge seems unusual, raise it with your lawyer's office before closing day. A short call can clear up most questions.

Frequently asked questions