Legal Ways to Reduce Land Transfer Tax in Ontario

Land transfer tax can be a large closing cost, so it makes sense to ask whether any of it can be lowered. Some reductions are lawful and built into the rules. Others are shortcuts that can turn into audits and penalties.

This article walks through the lawful options, who they work for, and the ideas to avoid. It covers Ontario's provincial tax only. Toronto has a separate Municipal Land Transfer Tax with its own rates and rebates, so confirm that with a lawyer if you are buying there.

How the tax is calculated

The tax is payable by the person who acquires the land, and it is payable when the transfer is registered. It is normally based on the amount paid for the land, and the amount remaining on any mortgage or debt the buyer assumes is added to that base.

Provincial rates apply in layers, for agreements made after November 14, 2016 with registration on or after January 1, 2017.

Because the base is the value of the consideration, the lawful ways to reduce tax are mostly about what counts as consideration and whether you qualify for a refund.

The first-time homebuyer refund

The refund maximum is $4,000 for conveyances on or after January 1, 2017, which means no tax is payable on the first $368,000 of value for an eligible home. To qualify, you generally must meet all of these conditions:

• You are at least 18.
• You are a Canadian citizen or permanent resident, for agreements entered into after November 14, 2016.
• You have never owned an eligible home or an interest in one anywhere in the world.
• If you have a spouse, your spouse has not owned an eligible home while married to you; otherwise neither of you qualifies.
• You occupy the home as your principal residence within nine months of the transfer date.

Proof of occupancy must show the new address, and utility bills and home insurance are not accepted. If a co-purchaser is not a first-time buyer, the refund is proportionate to the interest held by eligible buyers.

You can claim the refund at registration electronically through the Explanation tab of the LTT affidavit, on paper at a Land Registry Office, or afterward through the Ministry of Finance portal. An application made after paying the tax must be filed within 18 months after registration, and refunds are not paid with interest.

Chattels and new-home extras

Chattels such as appliances and furniture are excluded from the value of consideration subject to land transfer tax, and they are reported separately. Your lawyer can advise on what is sensible for your purchase.

New homes work differently from what many buyers expect. Tax applies to the true value of the consideration, which is not limited to the purchase price in the agreement. Buyer-selected extras and upgrades, builder-added installations, and costs passed to the buyer as part of the conveyance arrangement, such as lot levies, development charges and school levies, are included.

If you assign a new-home agreement to someone else, the taxable value includes the assignment consideration, the original purchase price, and any extras or upgrades; HST is excluded from the value of consideration.

Transfers that may carry no tax, and timing

Some transfers are not taxed, but only when the facts truly fit. They are not planning tricks.

On timing, the definition of convey includes agreeing to sell land, so an agreement of purchase and sale or a related notice is taxable when tendered for registration. If the affidavit states that tax was already paid on it, no further tax is due when the later conveyance is registered. Deadlines apply to returns and refunds, and failing to file a required return for an unregistered disposition within 30 days may lead to assessment of tax, penalty and interest.

Ideas that are risky, and what to do next

Putting a lower price on the documents, or moving money outside the agreement, is not a lawful way to reduce tax. Value is the true consideration, and assumed liabilities count regardless of how the parties are related, apart from certain spousal transfers. First-time buyer refund applications and payments are subject to audit, and obtaining or attempting to obtain a refund through deceit, falsehood or fraud may lead to charges, with a maximum fine on conviction of $4,000.

• Check first-time buyer eligibility for every buyer on title before closing.
• Plan to occupy the home within nine months and keep proof showing the new address.
• Ask your lawyer which items qualify as chattels and how they should be reported.
• For a new build, ask for a list of extras, upgrades and levies that count toward value.
• Diarize refund deadlines: 18 months for the first-time buyer refund after paying, and 4 years for other refund requests.
• Ask whether a municipal tax applies where the property is located.

Frequently asked questions