Do You Pay Land Transfer Tax When Title Changes Without a Sale in Ontario?

Sometimes title to a home changes without anyone buying it. A parent adds a child to the deed, spouses rearrange ownership, an executor passes a house to a beneficiary, or co-owners switch from tenants in common to joint tenants. It is natural to assume that no sale means no land transfer tax.

That assumption is partly right and partly a trap. The answer turns on what, if anything, passes between the parties, and a mortgage is the item that most often changes the result. This article explains the starting rule, the common exceptions and the penalties for getting it wrong.

The starting rule: tax follows consideration

Ontario land transfer tax is normally calculated on the value of the consideration, meaning the amount paid for the land, including liabilities the transferee assumes, such as a mortgage. The Act defines this broadly: the gross sale price plus any benefit of whatever kind conferred as part of the arrangement. Land also includes fixtures.

The Land Transfer Tax Act has no general exemption for gifts of land. If no consideration of any kind passes, however, no tax is payable because the tax is calculated on a nil value. So the question is not whether it is called a gift. The question is whether anything of value moves in exchange.

For reference, the provincial rates for agreements after November 14, 2016 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, plus 2.5% over $2,000,000 where the land contains one or two single family residences.

The mortgage trap

When land is gifted subject to a mortgage that the recipient takes on, land transfer tax is payable on the amount owing at registration, whatever the relationship between the parties. A parent who "gives" a child a mortgaged home has therefore not made a tax-free transfer.

The exception is for spouses and former spouses. Under Regulation 696, R.R.O. 1990, a transfer between them is exempt where the only consideration is assuming a registered mortgage, or where the transfer is made under a written separation agreement or a court order. For this purpose, spouse follows the Family Law Act s. 29 definition, which includes married spouses and unmarried couples who cohabited continuously for at least three years, or who are in a relationship of some permanence and are parents of a child.

Transfers that are generally not taxed

Each exemption has conditions, and the family farm and family business rules in particular have detailed requirements. Confirm that your transfer fits before you rely on one.

Hidden transfers, anti-avoidance and penalties

Tax can apply even when nothing is registered. Land transfer tax also applies to an unregistered disposition of a beneficial interest in land, such as under a trust. It is due 30 days after the disposition, and a trustee must file a return within 30 days of becoming aware of it.

The Act also contains a general anti-avoidance rule. If a transaction is an avoidance transaction, its tax consequences are set as is reasonable to deny the tax benefit. In plain terms, the tax benefit from an avoidance transaction can be denied.

• Making false or deceptive statements, for example understating the price, is an offence. The fine is at least the greater of $1,000 or 50% of the tax that should have been paid, up to twice that tax, and the court can also impose imprisonment of up to two years.
• Where unpaid tax results from fraud or wilful default, the Minister may assess a penalty of the greater of $500 and 25% of the unpaid tax.
• Refund requests, other than the first-time homebuyer refund, must be made within 4 years of paying the tax.

Other points, and what to do next

Land transfer tax is only one layer. A person who gifts property, or transfers it to a non-arm's-length person for less than fair market value, is deemed to receive proceeds equal to fair market value, which can trigger a capital gain when a home is gifted to a child. If the home was your principal residence, you must report the sale and designate the property on Schedule 3 to claim the principal residence exemption. Capital property transferred to a spouse or common-law partner, where both are resident in Canada, is generally deemed transferred at cost, so no gain arises immediately, though the transferor can elect out on their return. Toronto also charges its own Municipal Land Transfer Tax, which is separate from the provincial tax discussed here. The Ministry has also noted that changes to the Act are proposed, so check current rules before you proceed.

Adding a family member who is not a spouse to title depends on the facts: what consideration or assumed mortgage passes, and whether beneficial ownership changes. The Ministry directs people with these questions to LTTGeneral@Ontario.ca.

• Find out whether any mortgage or other debt goes with the property.
• List anything of value, in money or otherwise, that the recipient gives.
• Identify the relationship between the parties and whether a separation agreement or court order is involved.
• Ask whether a trust or unregistered interest is involved, since the 30-day deadline can apply.
• Think about income tax consequences before signing.
• Have a lawyer or accountant confirm the result before the deed is registered.

Frequently asked questions