When Is Land Transfer Tax Due and Who Pays It in Ontario?

If you are buying a home, land transfer tax is one of the larger closing costs, and it is easy to be surprised by it. Many buyers want to know when the money has to be paid, who is responsible, and what happens if something goes wrong.

This article explains how the provincial tax is calculated, the rates, common exceptions, and the consequences of getting it wrong. Rates and exemptions can change, so confirm current figures with your lawyer before you rely on them. Municipal land transfer taxes charged in some cities are not covered here.

What the tax is calculated on

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 the value of the consideration broadly: the gross sale price plus any benefit of whatever kind conferred as part of the arrangement. Land includes fixtures.

The provincial rates for agreements after November 14, 2016, registered on or after January 1, 2017, are shown below.

When it is due and who deals with it

In a typical purchase, the tax is dealt with as part of the closing and registration of the transfer, and your real estate lawyer handles those steps. Your lawyer can tell you how much you need to provide, when, and how it will be collected on your closing. Who is responsible under your particular agreement is also something to confirm with your lawyer.

Timing is different for some transactions that are not registered. Land transfer tax also 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.

Situations where the tax may differ

• Gifts: the Act has no general exemption for gifts of land, but if no consideration of any kind passes, no tax is payable because the tax is calculated on a nil value. If land is gifted subject to a mortgage the recipient takes on, tax is payable on the amount owing at registration, whatever the relationship.
• 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.
• Estates: a transfer from a personal representative to a beneficiary in satisfaction of the beneficiary's interest in the estate is not taxable.
• Changing how 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.
• Family farms and family business corporations: certain transfers may be exempt.
• Non-residents: foreign nationals, foreign corporations and taxable trustees buying residential property also pay the Non-Resident Speculation Tax at 25%.

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, have never owned an eligible home anywhere in the world, occupy the home as a principal residence within nine months, and, for agreements after November 14, 2016, be a Canadian citizen or permanent resident. The refund must be claimed within 18 months after registration. If the buyer's spouse owned an eligible home while married to the buyer, neither spouse can claim it.

What happens if the tax is understated or not paid

Making false or deceptive statements, for example understating the price, is an offence under section 6 of the Land Transfer Tax Act. 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 a 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. The Act also has 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.

If you paid too much, refund requests other than the first-time homebuyer refund must be made within 4 years of paying the tax.

What to do next

• Ask your lawyer for an estimate of land transfer tax early, so you can budget for it.
• Tell your lawyer about anything that forms part of the price, including a mortgage you assume or any benefit passing between the parties.
• Ask whether you qualify for the first-time homebuyer refund, and keep your documents ready.
• Ask whether a municipal land transfer tax applies where the property is located.
• Never agree to state a lower price than the real one.

Frequently asked questions