On the hunt for a new home or cottage? The spring and summer real estate market is a great opportunity to buy a property and hopefully negotiate a great price! Unfortunately, one thing that can’t be negotiated when purchasing a home is the land transfer tax. For any property purchase including a home, cottage, condominium, commercial real estate or vacant lot, buyers must pay land transfer taxes as part of their closing costs. This amount is based on the formally assessed value of the home (not just the purchase price) and is usually paid during the ‘closing’ period. Let’s learn a bit more about land transfer taxes and how they may impact your next home purchase:
Calculating land transfer tax
Land transfer tax rates can vary depending on where you live in Canada, but here in Ontario it’s a fairly standard formula which is based on the property’s value. If you bought a home in Huntsville in 2019 for $500,000 for example, you can expect to pay approximately $6,475 in land transfer taxes. However, if you’re a first-time home buyer, there’s good news! You can qualify for a rebate of up to $4000 to help offset this expense. You can check out this handy calculator to determine the approximate land transfer tax bill based on your municipality. The proceeds from land transfer tax payments go to cover provincial and municipal government expenditures such as fire/ambulance/police, hospitals and health care, education, roads, environmental protection, and other such services.
Is this tax mandatory?
It’s just not easy to get around paying taxes, and the same holds true for land transfer taxes. They are essentially mandatory for all property purchases. However, in some arrangements where there is a ‘bare trust’ in place for example, land transfer taxes aren’t an issue as there is no legal change in the title of the property. A bare trust is rather uncommon, but it involves a trustee who ‘holds’ the property for a beneficiary. So, while the trustee remains officially on the deed and has legal title to the property, the beneficiary is responsible for all things related to the ownership of the property, including the mortgage, upkeep, and so on. Keep in mind that bare trusts are complex agreements, best used in unique situations.
When buying a property, the best advice is to plan ahead, know your budget, and understand your legal rights and responsibilities. This involves knowing about all the additional costs that come with a home purchase – above and beyond the negotiated price – so that there are no big surprises that could throw a wrench into your plans.
Whether you are buying or selling in the Parry Sound or Muskoka region, connect with our legal team at Ares Law. We specialize in real estate law, and it’s our job to look after our clients and ensure that their home buying or selling process runs smoothly. Call today to set up an appointment (705) 746-6444; we’re here for you.
