Land Transfer Tax When Buying Out a Co-Owner in Ontario

Two siblings inherit a house. A couple separates and one wants to keep the home. Two friends who bought together decide to part ways. In each case one owner pays the other to take over their share, and the question is how much Ontario land transfer tax (LTT) applies and what the paperwork must say.

The answer turns on what the buying owner gives in return for the share. Cash, a mortgage taken over and other debts can all matter. This article explains how the value is worked out, how assumed mortgages are treated, what the affidavit covers, and where special rules apply. It is general information, and your facts may change the result.

Who pays and what the tax is based on

The tax is payable by the person who acquires the land or a beneficial interest in it, and it is payable when the transfer is registered. In a buyout, that is the owner who is taking over the other owner's share.

LTT is normally based on the amount paid for the land. The amount remaining on any mortgage or debt the buyer assumes is added to that base amount. Ontario guidance also states that consideration includes the assumption of any liabilities.

The provincial rates are graduated: 0.5% up to and including $55,000, 1.0% on the part over $55,000 up to $250,000, 1.5% on the part over $250,000 up to $400,000, and 2.0% over $400,000. The rate is 2.5% on the portion over $2,000,000 for land containing one or two single family residences. These are provincial figures only. Some municipalities, such as Toronto, charge their own separate tax, so confirm that with your lawyer.

Does an assumed mortgage count?

Yes, in general. Ministry guidance says an outstanding encumbrance is taxed as consideration regardless of the relationship between the parties, except for certain spousal transfers. Assumed liabilities count as consideration. Being related to the other owner does not remove the mortgage from the calculation.

This matters because many buyouts involve a mortgage that stays on the property. If you pay your sibling a sum of money and also take over the mortgage, both are part of the value. The ministry makes this point about estates too: where a sibling buys the others out for money, the amount paid and any mortgage assumed is consideration.

What the affidavit must say

The LTT affidavit is where the value of the consideration is reported. Consideration other than chattels is reported in Statements 1(a) to (f) on electronic registrations, or Lines 2(a) to (e) on the paper affidavit, and chattels are reported separately in Statement 1(h) or Line 2(g).

If the transfer really is for nil consideration, the affidavit reports 'nil' in paragraph 4, with the relationship and reason in paragraph 5 and any encumbrances in paragraph 6. Reporting nil when a mortgage is being taken over or money is changing hands would not match the guidance on how consideration is defined. The warnings on the ministry's forms refer to audit, tax and interest, penalties and serious offences, so accuracy matters. We do not state specific penalty amounts here, because they depend on the circumstances.

• The amount paid to the departing owner, in whatever form
• The balance of any mortgage or debt the buyer takes over
• Any chattels, which are listed separately
• The relationship between the parties and the reason, if the transfer is nil

Situations that are treated differently

Not every change in ownership is a buyout. Some common situations follow different rules.

• Spouses or former spouses: transfers are taxable unless a Regulation 696 exemption applies. The cases are where the only consideration is assuming a registered encumbrance, where the transfer complies with a written separation agreement, or where it complies with a court order or judgment. In the last two cases, the value is the consideration given plus the amount owing on encumbrances.
• Estate property: a transfer from an estate's personal representative to a beneficiary, satisfying their interest in the estate, is not subject to tax and is reported as nil in paragraph 4.
• Changing how you hold title: switching between tenancy in common and joint tenancy between the same parties is not a conveyance, so the consideration is nil.
• Partition: dividing land among co-tenants is not taxed if each receives land equal in value to their original interest, and the partitioned lands must be contiguous.

For a separation-related transfer registered electronically, the exemption is claimed with Teraview statement 9085 plus 9086, 9087 or 9088 depending on the situation. On paper, the consideration value goes in paragraph 2 of the affidavit and the exemption is explained in paragraph 5.

Timing and what to do next

Tax is payable on registration. If a change in beneficial ownership after July 18, 1989 is not registered on title within 30 days, a return on the acquisition of a beneficial interest in land must be filed within 30 days of the change. Missing a required return may lead to assessment of tax, penalty and interest.

• Write down exactly what is being paid or taken over: cash, mortgage balance, other debts
• Get a current mortgage statement and confirm whether the lender must consent to the change
• List any appliances or furniture included, so they can be reported separately
• Check whether the other owner is a spouse or former spouse, or whether the property comes from an estate
• Ask a lawyer to confirm the value, the affidavit wording and any municipal tax before you sign

Frequently asked questions