We all know buying a home or cottage can be expensive, especially in today’s market. There’s the obvious purchase price, the down-payment, then the home inspection, utility hook-ups, and even moving costs…just to name a few. On top of these costs, any purchase of a Canadian property will generate another payment required known as land transfer taxes. The amount of the land transfer tax is based on the value of the property and must be paid prior to the transfer of the title of the home, before you take full ownership. As no one wants to pay more than they have to (especially taxes!) we do at times hear people ask if there are any loopholes. Let’s start with the basics to help you better understand land transfer taxes:
What are the land transfer taxes in Ontario?
Each province in Canada has their own rates and calculations for land transfer taxes. If you have recently bought a property in Ontario, you will face this added tax from the province on the purchase of your new home, cottage, condo, or even if it’s vacant land. The amount of this tax is based on the value of the property. The money paid into land transfer taxes goes right back into the government coffers, meaning that our public education systems, health care, roads, police/emergency services and so on benefit from these tax dollars.
Is there any way to avoid paying this tax?
If you are a first-time home buyer in Ontario who has not previously owned property, you may be eligible for a rebate of the full or partial amount of the land transfer tax, up to a maximum of $4,000. Be sure to talk with your realtor, lender or real estate lawyer to see if you qualify and for how much.
In some instances where a ‘bare trust’ is established, there is no payment of land transfer taxes as the legal title of the property is not altered. A bare trust is when one or more persons (trustee) hold a property for the benefit of one or more persons (beneficiary). This allows for the transfer of a property without altering or changing the legal title of the property. The use of a bare trust could mean avoiding multiple land registrations and the associated costs. Basically, bare trustees simply hold the legal title to the property, but all the risks and rewards of ownership remain with the beneficiary. Bare trusts are complicated, often risky agreements, and in many instances not worth the effort. Taxes as we know, are inevitable, so it’s probable you’ll end up paying land transfer taxes in the end.
Buying and new home, cottage or condo is an exciting time. It’s also a solid investment, which is why you need to make sure it’s carefully protected and that all legal issues have been properly addressed, including the taxes. Give us a call at Ares Law so we can walk you through process to understand it, and your rights. At Ares Law, we specialize in helping clients across the greater Muskoka region with all their real estate needs. Be sure to connect with Bernie Keating and his team today; just call (705) 645–8743 and let’s get started!
