Land Transfer Tax Exemptions and Refunds in Ontario: What Applies

Land transfer tax is a cost many people only notice at closing. When land passes between family members, into a trust or out of an estate, it is natural to ask whether the tax can be avoided or reduced.

Ontario does waive or refund the tax in some situations, but each one is narrow and depends on the facts. This article walks through the main ones so you know what to ask about before you sign anything. The Ministry of Finance has said changes to the Land Transfer Tax Act are proposed, so rates and exemptions should be checked again before you rely on them.

How the tax is worked out, and why exemptions are narrow

Ontario land transfer tax is normally calculated on the value of the consideration, which means the amount paid for the land, including liabilities the buyer assumes such as a mortgage. The Act defines this broadly as the gross sale price plus any benefit of any kind given as part of the arrangement.

For agreements after November 14, 2016, the provincial rates are 0.5% up to $55,000, 1.0% from $55,000 to $250,000, 1.5% from $250,000 to $400,000 and 2.0% over $400,000. The rate is 2.5% over $2,000,000 where the land contains one or two single family residences.

Because the tax follows consideration, most exemptions work by showing that there is no consideration, or that the Act or a regulation specifically excuses the transfer. Toronto also charges its own municipal land transfer tax on top of the provincial tax, with its own rules, so that is worth checking separately if the property is there.

Situations where no tax is payable

These are the main situations the Ministry of Finance identifies. Each has conditions, so treat this as a map of what to ask about rather than a guarantee that a particular transfer qualifies.

• A true gift with no consideration of any kind. There is no general gift exemption, but tax is calculated on a nil value, so none is payable.
• Spouses and former spouses. A transfer between them is exempt where the only consideration is assuming a registered mortgage, or where it is made under a written separation agreement or a court order.
• Estate transfers. A transfer from a personal representative to a beneficiary in satisfaction of the beneficiary's interest in the estate is not taxable.
• Changing how the same owners hold title. Converting a tenancy in common to a joint tenancy, or the reverse, between the same parties is not a conveyance, so no tax applies.
• Correcting a deed. A deed that only corrects an earlier legal description is not taxable if no consideration passes and tax was properly paid or exempted on the earlier document.
• Partitions. No tax is payable where co-tenants divide land so each receives land equal in value to their original interest.
• Family farms and family business corporations. Ontario offers exemptions for certain transfers of farmed land between family members, and certain transfers from an individual to their family business corporation.

Where a gift or family transfer can still be taxed

The most common surprise is a mortgage. When land is gifted subject to a mortgage the recipient takes on, tax is payable on the amount owing at registration, whatever the relationship between the parties. A parent giving a child a mortgaged home is therefore not necessarily tax-free.

Trusts can also catch people out. The tax applies to an unregistered disposition of a beneficial interest in land. It is due 30 days after the disposition, and a trustee must file a return within 30 days of becoming aware of it.

Foreign nationals, foreign corporations and taxable trustees buying residential property also pay the Non-Resident Speculation Tax at 25%. Adding a family member other than a spouse to title depends on what consideration or assumed mortgage passes and whether beneficial ownership changes, so it is worth confirming the facts with a lawyer or the Ministry before you proceed.

Refunds for first-time homebuyers and others

First-time buyers may qualify for a refund of up to $4,000 for transfers on or after January 1, 2017. The buyer must be at least 18, must never have owned an eligible home anywhere in the world, must occupy the home as a principal residence within nine months, and, for agreements after November 14, 2016, must be a Canadian citizen or permanent resident.

If the buyer's spouse owned an eligible home while married to the buyer, neither spouse can claim the refund. The refund must be claimed within 18 months after registration. Refund requests other than the first-time homebuyer refund must be made within 4 years of paying the tax.

Risks to avoid and what to do next

Understating a price or hiding a benefit is not a safe way to reduce tax. Making false or deceptive statements is an offence, with a fine of at least the greater of $1,000 or 50% of the tax that should have been paid, up to twice that tax, and possible imprisonment of up to two years. Where unpaid tax results from 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 the tax consequences of an avoidance transaction be set so as to deny the tax benefit.

• Write down the exact consideration: price, assumed mortgage and any other benefit.
• Identify the relationship between the parties and whether the Act or regulation names it.
• Check whether a mortgage stays on title after the transfer.
• Note any deadlines for a refund claim.
• Ask a lawyer to confirm current rates and exemptions, including any Toronto municipal tax.

Frequently asked questions