Ontario Land Transfer Tax: How It Is Calculated at Closing

If you are buying a home in Ontario, land transfer tax is usually one of the largest closing costs after the down payment. Many buyers are surprised that it is not a single percentage of the price.

This article explains how the provincial tax is built from price brackets, what counts toward the value, when you pay it, and where refunds and exceptions come in. Your own figure depends on your agreement and your situation, so treat the examples as illustrations.

How the brackets work

Ontario land transfer tax is calculated in brackets on the value of the consideration. For agreements entered into after November 14, 2016 that are registered on or after January 1, 2017, the rates are set out below.

Each rate applies only to the portion of the value that falls in its bracket. Crossing into a higher bracket does not raise the rate on the whole price.

There is an extra bracket for land with one or two single family residences. On the part of the value over $2,000,000, the rate is 2.5%, and single family residences include cottages and cabins, whatever the zoning.

A worked example

Take a value of $400,000. The first $55,000 is taxed at 0.5%, the part over $55,000 up to $250,000 is taxed at 1.0%, and the part over $250,000 up to $400,000 is taxed at 1.5%. Added together, the tax totals $4,475, which is the figure the Ministry of Finance gives for a $400,000 value.

For a higher price, you would do the same steps and then add 2.0% on every dollar above $400,000. If the property is a house worth more than $2,000,000, the 2.5% rate applies only to the amount above that line.

What counts as the value

The value of the consideration is more than the headline price. It includes the purchase price, any liabilities assumed, benefits conferred, soft costs and the cost of upgrades. It does not include HST paid on the purchase price.

• Purchase price: always part of the value.
• Liabilities you take on, such as an assumed obligation: included.
• Upgrades and soft costs on a new build: included.
• HST paid on the purchase price: not included.

Because new-home contracts often involve extras, ask your lawyer how they will be treated in your case. Some municipalities may also charge their own additional tax, which a provincial calculation will not show, so confirm this for your property.

When you pay and who handles it

Land transfer tax is payable on every conveyance of land tendered for registration. Under the Land Transfer Tax Act, s. 2(1), it is paid when the conveyance is tendered for registration or before then. In practice, that means it is paid on closing day.

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. How the tax money reaches your lawyer on closing day depends on your agreement and your lawyer's instructions, so it is worth confirming the details with your lawyer well ahead of closing.

Refunds and exceptions

First-time homebuyers can get a refund of up to $4,000 for conveyances on or after January 1, 2017. You must be at least 18, must never have owned a home or an interest in a home anywhere in the world, and must occupy the home as your principal residence within nine months of the transfer.

• Timing: the refund can be claimed at registration through the electronic land transfer tax affidavit. If it is not claimed then, you pay the tax and apply to the Ministry of Finance within 18 months after registration.
• Spouses: if your spouse owned a home while married to you, you do not qualify, and neither spouse can get the refund.
• Joint buyers: if one buyer is not a first-time buyer, the refund is reduced in proportion to the interest acquired by the buyers who qualify.
• Citizenship: for agreements signed after November 14, 2016, you must be a Canadian citizen or permanent resident. If you are not at closing, you have 18 months after registration to become eligible and apply.

Transfers between spouses or former spouses are exempt only if one of three conditions is met: the only consideration is assuming a registered encumbrance such as a mortgage; the transfer complies with a written separation agreement; or it complies with a court order.

Foreign nationals, foreign corporations and taxable trustees who buy residential property anywhere in Ontario may owe the separate Non-Resident Speculation Tax of 25% of the value of the consideration, charged in addition to land transfer tax. A foreign national is an individual who is not a Canadian citizen or permanent resident, and First Nations individuals registered under the federal Indian Act are excluded. An exemption may be available where the transferee is a nominee, a protected person, or the spouse of a Canadian citizen, and supporting documents may be required.

What to do next

• Confirm the full value of the consideration, including any upgrades or assumed liabilities.
• Work out the bracket calculation or ask your lawyer for the exact figure well before closing.
• Tell your lawyer early if you may qualify as a first-time buyer, and about any spouse's past ownership.
• Check whether any municipal or non-resident taxes apply to your purchase.
• Plan to have the tax available as part of your closing funds.

Frequently asked questions