Penalties for Understating Value on an Ontario LTT Affidavit

When a price is high, some buyers and sellers wonder whether the paperwork could show a lower number. It can be tempting, but the figure on the land transfer tax affidavit is a sworn statement, and it is the basis for the tax.

This article explains what counts as value, what the consequences can be, why common shortcuts do not hold up, and what lawful options exist. We have not set out specific penalty amounts for understating value, because those depend on current legislation that a lawyer should confirm.

What the affidavit is measuring

Land transfer 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, plus the amount remaining on any mortgage or debt the buyer assumes. Ontario guidance states that consideration includes the assumption of any liabilities.

For new homes, the tax applies to the true value of the consideration, which is not limited to the price in the agreement. Buyer-selected extras and upgrades, builder-added installations, and costs passed to the buyer, such as lot levies, development charges and school levies, are included.

So the question the affidavit answers is not simply what the contract price was. It is what was really given for the land, in any form.

What the consequences can be

Fewer consequences are clearly spelled out than many people expect, so here is what is clear. Failing to file a required return for an unregistered disposition within 30 days may lead to assessment of tax, penalty and interest. First-time buyer refund applications and payments are subject to audit. 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.

Beyond those points, the penalty amounts and audit powers that apply to a false statement of value on the affidavit are set by statute. Check the current legislation with a lawyer rather than relying on a figure you saw online.

In general terms, a sworn document that turns out to be wrong can mean unpaid tax, interest, penalties, and legal costs to deal with the problem. It can also create trouble later, when you sell, refinance or are asked to explain the transaction.

Common shortcuts and why they fail

The same principle runs through all of these. The documents should match what actually happened.

Lawful options that can lower the bill

Some reductions are legitimate because the rules provide for them.

• The first-time homebuyer refund of up to $4,000 for conveyances on or after January 1, 2017, if you meet the eligibility conditions.
• Reporting chattels such as appliances and furniture separately, since they are excluded from the value of consideration.
• Transfers where no consideration passes, such as certain trustee-to-beneficial-owner conveyances where beneficial ownership has not changed, or an estate trustee transferring to a beneficiary to satisfy the beneficiary's interest.
• For separation-related transfers, a Regulation 696 exemption where a written separation agreement or court order applies.

Each one depends on facts and paperwork. A lawyer can confirm whether it fits before anything is signed or sworn.

What to do next

If you are at the planning stage, the safest step is to settle the true consideration and let the lawyer prepare the affidavit from accurate information. If you already signed something you are worried about, speak to a lawyer promptly. Time limits apply to returns and refund claims, including 30 days for an unregistered disposition return.

• Gather the agreement, any amendments, the statement of adjustments, and a list of extras or upgrades.
• Tell your lawyer about any assumed mortgage, debt or other payment connected to the purchase.
• Make a list of the chattels included, since they are reported separately from the value of consideration.
• Check first-time buyer eligibility honestly for everyone on title.
• Ask your lawyer which penalties and audit powers apply to your situation under the current law.

Frequently asked questions