First-Time Homebuyer Land Transfer Tax Refund in Ontario: Who Qualifies

Land transfer tax is one of the largest costs you pay when you close on a home in Ontario. If you are buying your first home, the province offers a refund that can take a big bite out of that bill. The catch is that the rules are specific, and a few common situations can shrink the refund or remove it.

This guide walks through the basic tests, how the refund is usually claimed, and the situations where people are most often surprised: spouses, co-buyers and buyers who are not yet citizens or permanent residents. It covers the provincial tax only. Toronto also charges its own municipal land transfer tax, which is separate and not covered here.

What the refund is and how big it can be

First-time homebuyers can get a refund of Ontario land transfer tax of up to $4,000 for conveyances on or after January 1, 2017. The $4,000 is the most the refund can be.

To see how much it matters, take the Ministry of Finance's own example. On a value of consideration of $400,000, Ontario land transfer tax totals $4,475. A refund of up to $4,000 would therefore cover most of the provincial tax on a home at that price.

Keep in mind that the value of consideration is not always just the price on the agreement. It includes the purchase price, any liabilities assumed, benefits conferred, soft costs and the cost of upgrades, but not HST paid on the purchase price.

The basic eligibility tests

To qualify, the buyer must meet all of the following:

• Be at least 18 years old.
• Have never owned a home or an interest in a home anywhere in the world.
• Occupy the home as their principal residence within nine months of the transfer.
• For agreements signed after November 14, 2016, be a Canadian citizen or permanent resident, although a buyer who is not one at closing has 18 months after registration to become eligible and apply.

The "anywhere in the world" part catches people off guard. A home or an interest in a home owned outside Canada, or owned years ago, still counts against you. If you are unsure whether something you once held counts as an interest in a home, ask a lawyer before closing.

How the refund is claimed

The simplest route is to claim it at registration. It can be claimed through the electronic land transfer tax affidavit. Electronic registration is mandatory in Ontario except for complex registrations, and land transfer tax statements are completed as part of the electronic transfer. Only authorized Teraview account holders and their registered users, such as lawyers and conveyancers, can create and submit documents in the system.

If the refund is not claimed at registration, you pay the tax and then apply to the Ministry of Finance. The application must be made within 18 months after the conveyance is registered.

Situations that reduce or remove the refund

Several common situations change the result. Each one is an exception to the basic tests above.

• Spouses. If the buyer's spouse owned a home while married to the buyer, the buyer does not qualify, and neither spouse can get the refund.
• Joint buyers where one is not a first-time buyer. The refund is reduced and is proportionate to the interest acquired by the buyers who qualify.
• Buyers who are not Canadian citizens or permanent residents at closing. For agreements signed after November 14, 2016, citizenship or permanent residence is required, but such a buyer has 18 months after registration to become eligible and apply.

The spousal rule is the one most likely to surprise couples. It does not matter that you personally have never owned a home. If your spouse owned one during the marriage, the refund is off the table for both of you.

For co-buyers, the effect depends on who is on title and in what shares. If one of the buyers is not a first-time buyer, the refund is reduced and is proportionate to the interest acquired by the buyers who qualify. The exception is a spouse: if your spouse owned a home while married to you, neither of you gets the refund. A lawyer can help you think through ownership shares before you sign.

What to do before you close

Sort out eligibility early, ideally before you make an offer, so there are no surprises on closing day. The following steps help:

• Confirm that every buyer is at least 18.
• List every home or interest in a home that each buyer has ever held, anywhere in the world.
• Ask whether any spouse owned a home during the marriage.
• If you are buying with someone who is not a first-time buyer, ask how the refund would be reduced.
• If any buyer is not yet a citizen or permanent resident, find out the timing for becoming eligible and applying within 18 months of registration.
• Plan to move in as your principal residence within nine months of the transfer.
• Ask your lawyer whether the refund will be claimed on the electronic affidavit at registration, and diarize the 18-month deadline if it is not.

If your situation involves a separation, a previous property abroad or a mixed group of buyers, it is worth a conversation with a real estate lawyer. Rules for transfers between spouses or former spouses are different again, and these are exempt from land transfer tax only in limited cases.

Frequently asked questions