Thinking of buying a home in one of Ontario’s major cities? While the affordability of local real estate, property tax, and neighbourhood amenities are obvious considerations, there’s one oft-overlooked factor that can add thousands of dollars to your closing costs: land transfer tax.
Because LTT is calculated as a percentage of the overall home price, the amount of tax paid by buyers can vary from market to market – a range that can be particularly dramatic in provinces with a diverse array of communities.
For example, in Toronto (the only city in Canada where LTT is charged at both the provincial and municipal level), the amount of tax paid upon closing is a whopping $27,521, based on the average home price of $864,275. That accounts for a full 3.2% of the total purchase price.
The amount of LTT shrinks, however, to just $1,374 in Sault Ste. Marie, where the average home price is $164,852 – just 0.8% of the purchase price. Most buyers in mid-priced Ontario markets, though, will pay roughly $5,000 – $7,000 in LTT – still a considerable addition to their closing costs.
Rebates for first-time homebuyers
Fortunately, for those trying to break into the market for the first time, the provincial government offers a tax rebate of $4,000 – large enough to take the sting out of LTT in moderately priced markets.
While a first-timer in Toronto (where an additional rebate of $4,475 is offered) will still be on the hook for $19,046 in LTT (for the average priced home), the provincial rebate effectively whittles the tax below $5,000 in 18 of the province’s major markets. And, because the province’s minimum LTT threshold is $368,360, many first-time buyers in the following six markets won’t pay it at all:
Sault Ste. Marie
Why it’s important to save for LTT
One of the most challenging aspects of LTT is that it cannot be rolled into a mortgage or borrowed as part of a home loan or bridge financing; it must be paid in cash upon closing. That means prospective buyers must take it into account when budgeting for their home purchase, especially in expensive markets where it will add thousands to the home’s final purchase price.
Check out the infographic below to see in which Ontario housing markets buyers will be paying the highest – and lowest – amount of land transfer tax.
Penelope Graham is the Managing Editor at Zoocasa, a leading real estate resource that combines online search tools and a full-service brokerage to empower Canadians to buy or sell their homes faster, easier and more successfully. Buyers can browse listings in a number of markets, including Toronto real estate and the surrounding areas such as Mississauga, Brampton, and Kitchener homes for sale.