- A closing adjustment shares costs like property tax fairly between buyer and seller as of the closing date.
- Unpaid or interim tax bills are the kind of detail your lawyer should confirm before closing.
- Other closing costs, such as land transfer tax refunds or the Non-Resident Speculation Tax, work separately from the property tax adjustment.
On closing day, the buyer and seller usually settle who owes what for costs tied to the property, including municipal property tax. This is done through a statement of adjustments prepared by the lawyers.
This article explains the idea in plain words, what to watch for when tax bills are unpaid or interim, and the other Ontario costs that can show up around the same time.
What an adjustment on closing means
Property tax is billed for a period, but ownership changes on a particular day. An adjustment divides the cost so the seller is responsible for the period they owned the home and the buyer for the period after closing. If the seller has already paid ahead, the buyer generally reimburses the seller for the buyer's share. If the tax is unpaid, the seller generally credits the buyer.
The exact method, the date used and any special terms depend on the agreement of purchase and sale. Read that agreement carefully and ask your lawyer to explain how it applies.
Unpaid and interim tax bills
Sometimes the latest bill is not final. Interim bills are estimates, and a later bill can differ, particularly for new builds or recently changed properties. Unpaid amounts can also affect the buyer after closing.
- Ask the seller's lawyer to confirm with the municipality what has been paid and what is owing.
- Check whether the adjustment uses a final bill or an estimate.
- Ask whether a later bill could change the amount, and how that is handled between the parties.
- Make sure any arrears are dealt with on closing, so they do not become your problem as the new owner.
For a new build, ask the builder how taxes are handled, because the property may not yet be fully assessed.
Other costs around closing
Several other items can appear on closing day. They are separate from the property tax adjustment.
| Item | Who it affects | Key point |
|---|---|---|
| Ontario land transfer tax refund | First-time buyers | Refund up to a maximum of $4,000, usually claimed at registration in the land transfer tax affidavit |
| Non-Resident Speculation Tax | Foreign nationals, foreign corporations and taxable trustees | 25%, in addition to the general land transfer tax |
| GST/HST rebates on new homes | First-time buyers of new or substantially renovated homes | Federal rebate up to $50,000; Ontario rebate up to $80,000 of the provincial part of the HST |
If any transferee is a foreign entity or taxable trustee, the Non-Resident Speculation Tax applies to the full value of the consideration, not just that person's share, and every transferee can be liable. If the land transfer tax refund is not claimed at registration, you must apply to the Ministry of Finance within 18 months after the date the conveyance was registered.
If you are the seller
Sellers should also think about income tax. If the property was solely your principal residence for every year you owned it, you usually pay no tax on the gain. You report the sale and designation on Schedule 3 and complete Form T2091(IND).
A flipped property, a housing unit in Canada owned for less than 365 consecutive days before it is sold, has its profit deemed to be business income, and the principal residence exemption is not available. Exceptions exist for certain life events.
What to do next
- Send your lawyer the latest property tax bill and any notices as soon as you have them.
- Ask how the adjustment is calculated and which date is used.
- Ask what happens if an interim bill is later replaced by a final one.
- Review the statement of adjustments before closing, and ask about anything you do not understand.
- Ask whether you qualify for any refund or rebate, and how and when to claim it.
Frequently asked questions
Who pays property tax on the closing date?
Generally the cost is divided so each party pays for their own period of ownership. The agreement of purchase and sale and the statement of adjustments set out how it is done in your deal.
What if the seller has not paid the tax bill?
Unpaid amounts are usually dealt with on closing through the adjustments or by paying the arrears. Your lawyer can confirm the status with the municipality.
What if the bill is only an interim estimate?
The adjustment may be based on the estimate, and a later bill can differ. Ask your lawyer how a later difference will be handled between you and the other party.
Can I get a land transfer tax refund as a first-time buyer?
Ontario refunds land transfer tax to first-time homebuyers up to a maximum of $4,000, and it is usually claimed at registration. Conditions apply, including living in the home as your principal residence within nine months of the transfer.
Sources
- CRA – Principal residence — canada.ca
- CRA – Residential Property Flipping Rule — canada.ca
- Ontario Ministry of Finance – Land Transfer Tax Refunds for First-Time Homebuyers — ontario.ca
- CRA – What is the first-time home buyers' rebate — canada.ca
- CRA – First-time home buyers' (FTHB) GST/HST rebate — canada.ca
- Ontario Ministry of Finance – Non-Resident Speculation Tax — ontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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