Buying a Home: Don’t Forget the Land Transfer Tax

Buying a home is always an exciting time. It’s still considered a financial rite of passage for most of us, and a life milestone. Most of us carefully consider what we can afford, and then look for a home that fits our needs and payment abilities.

However, many homebuyers neglect to consider some of the other costs involved in buying a home. It’s important to realize that buying a home doesn’t consist only of the monthly principal and interest payments. You’ll have to pay property taxes, and you’ll probably have higher utility costs. And don’t forget about maintenance and repairs.

And, when you buy the home, in most provinces and territories you will have to pay a land transfer tax.

What is the Land Transfer Tax?

When property changes hands, many provinces levy a tax. Only Alberta and Saskatchewan do not require you to pay this tax when you buy real estate. You aren’t off the hook, though. Both of these provinces do require you to pay a transfer fee. However, this transfer fee is much smaller than the land transfer tax levied by most of the other provinces.

In most cases, the transfer tax uses a percentage of property value to determine what you owe. The asking price of the home is often used as the estimate of a property’s value. You should also be aware that you might have to pay an additional municipal tax. Toronto homebuyers find that they pay a municipal tax on top of Ontario’s land transfer tax.

When you buy the property, your tax is figured based on the formula used by your province. Before you buy, make sure you understand how the land transfer tax is determined, and make sure that you are prepared with some means of paying it.

In some cases, the tax is charged in tiers, much like your marginal income tax rate. The first $55,000 of your property value might be charged at 0.5% and then you might pay 1.0% for the amount between $55,000 and $250,000. The more valuable the property is, the higher the tax you pay in some cases. Every province is different, so double-check before you buy.

Land Transfer Tax Rebates

In some cases, you can get a little help with paying for your land transfer tax. Some provinces provide you with a rebate if you are a first time homebuyer. British Columbia, Prince Edward Island, and Ontario all provide you with a tax benefit to help offset the cost if you are buying your first home. The City of Toronto also provides a tax rebate for first time homebuyers who want to offset the impact of the land transfer tax.

Land Title Transfer Fees

As mentioned above, Alberta and Saskatchewan do not charge a land transfer tax. Instead, you have to pay land title transfer fees. You need to pay a title registration fee and a mortgage registration fee as part of your property purchase.

In Saskatchewan, you are only required to pay a land title fee. In most cases, you don’t pay this fee directly; instead, your lawyer takes care of it while filing the title paperwork for you.