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What Is Land Transfer Tax?
Land Transfer Tax (LTT) is the tax you pay when you buy land or an interest in land.
This tax applies to anyone buying any property in Ontario, from a resale home to a pre-construction condo. Sellers do not need to pay the LTT. Your real estate lawyer usually includes it with your other closing costs at the final closing.
Many investors overlook this tax when buying a property, but it is another line item to calculate in your budget.
In this article, you will learn how to calculate the Land Transfer Tax and distinguish between Ontario's and Toronto's LTTs. You will also find out if you are eligible for the first-time home buyer's rebate.
What Is Land Transfer Tax?
key Points
Who Pays Land Transfer Tax?
In Ontario, if you buy land or an interest in land, you must pay the Ontario Land Transfer Tax (OLTT). Whether you plan to use the property as an investment or to live in it, you must pay this tax.
LTT is typically based on what you paid for the land, but it can also be based on fair market value. In addition, each province and some municipalities set their own tax rates.
For example, Toronto also charges an additional tax known as the Municipal Land Transfer Tax. It is also called Toronto Land Transfer Tax (TLTT). So, if you're purchasing a home there, you must pay both the Ontario and Toronto Land Transfer Taxes.
You must pay this tax as soon as you take possession of the property. On closing day, your lawyer will include this tax in your ledger when you receive the transferred deed.
Two Types of Land Transfer Tax:
Not only is the OLTT an added cost to consider, but you also pay an additional TLTT if you're buying in Toronto. Toronto is the only city in Ontario where you must pay an additional municipal LTT on top of the provincial one.
Only buyers pay this tax when purchasing land or an interest in land in Ontario. Sellers do not have to pay this tax when selling their property. The term "land" can include buildings, buildings to be constructed, and fixtures. This means that if you buy a home, the tax you pay will be based on the purchase price minus HST.
Consider this tax a closing cost because you pay it on your closing day. Your lawyer will review all the closing costs with you during this time. They will also tell you the taxes you must pay and facilitate the payment.
But you don't need to wait until the closing day to determine how much Land Transfer Tax you owe. Instead, we will explain how you can calculate this cost on your own. That way, you know how much you can expect to pay before final closing.
Ontario Land Transfer Tax
Ontario’s Land Transfer Tax Rates were last updated in 2017. The biggest change was that the Province introduced a $2 million tax bracket, whereas the marginal tax rates for the first four price brackets remained unchanged. This update now covers the purchase price of all homes in Ontario.
This chart will give you an idea of how much OLTT you would owe during final closing based on the property's purchase price.
- If the value of the property is up to and including $55,000, the tax rate is 0.5%
- If the value exceeds $55,000, up to and including $250,000, the tax rate is 1.0%
- If the value exceeds $250,000, up to and including $400,000, the tax rate is 1.5%
- If the value exceeds $400,000, up to and including $2,000,000, the tax rate is 2.0%
- Any amounts exceeding $2,000,000, where the land contains one or two single-family residences, the tax rate is 2.5%.
Keep in mind that this chart is based on a sliding scale system, which means it's not as simple as calculating the average tax rate. Land Transfer Tax is a marginal tax, and each portion of your home's value is taxed at its marginal tax rate.
For Example:
Let's say that you are purchasing a home for $450,000. The tax rate is calculated like this:
- The first $55,000 of your purchase price is taxed at the rate of 0.5% ($275)
- The next $195,000 ($55,000.01 to $250,000.00) is taxed at a rate of 1.0% ($1,950)
- Then the next $150,000 ($250,000.01 to $400,000.00) is taxed at a rate of 1.5% ($2,250)
- The remaining $50,000 of the purchase price, based on the tax bracket of $400,000.01 to $2,000,000, is taxed at a rate of 2.0% ($1,000)
- The total Land Transfer Tax amount in this example will be $5,475.
If this sounds complicated, try not to worry. You can use a Land Transfer Tax calculator that will automatically calculate this amount for you based on the property's purchase price and location.
Toronto Land Transfer Tax
Similar to the Ontario Land Transfer Tax, the City of Toronto has its own marginal tax rate. The Toronto Land Transfer Tax applies to all home purchases within the city's boundaries, including North York, Scarborough, and Etobicoke. Toronto's Land Transfer Tax has the same marginal tax rate as Ontario and calculates the tax in the same way.
Remember, when you purchase a home in Toronto, a Toronto Land Transfer Tax will also apply in addition to the Ontario Land Transfer Tax. You will pay this tax during the final closing with your real estate lawyer. If you are a first-time homebuyer, there is a rebate for Provincial and Municipal LTT.
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Land Transfer Tax Rebate For First-Time Home Buyers
If you are a first-time homebuyer, you may be eligible for a partial or full tax refund, up to a maximum of $4,000. To qualify for this refund, you must:
- Be a Canadian citizen or permanent resident of Canada.
- Be at least 18 years of age.
- Plan on occupying the home as your principal residence within nine months of the date of land transfer.
- Never have owned an eligible home in the past, or even an interest in another home anywhere in the world, and
- Ensure that if you have a spouse, they too cannot have owned a home or any interest in another home anywhere in the world during the time they have been your spouse.
- Apply for the rebate with the Ministry of Finance within 18 months of the registered closing date or the unregistered disposition date.
Based on Ontario's Land Transfer Tax rates, if you qualify for this rebate, there will be no LTT on the first $368,000 of the cost of a home. If the home's purchase price is above this threshold, you will receive a maximum refund of $4,000. If you are a first-time homebuyer purchasing a home in Toronto, you are also eligible to receive a maximum tax rebate of $4,475 on Toronto's Land Transfer Tax. Based on Toronto's tax rate, the rebate will cover the full Municipal Land Transfer Tax on homes worth $400,000 or less. The Toronto LTT rebate calculation is similar to that of Ontario.
Suppose you are a first-time homeowner buying a home with your spouse, and you are both Canadian citizens or permanent residents of Canada. In that case, both you and your partner can claim a refund up to the maximum allowed, as long as neither of you owned a home while you were each other's spouse. However, if your spouse becomes a homeowner while married, you cannot get the refund, even if you did not live together in the same house.
However, if you are a first-time homebuyer and your spouse purchased a home before you married, you can still receive 50% of the rebate. However, this only applies if your spouse purchased a home before you were each other's spouse.
Scenario 1: Neither Spouse Has Owned a Home Before
Both spouses are considered first-time homebuyers and can claim 100% of the land transfer tax rebate.
Scenario 2: One Spouse Has Owned a Home (Before Marriage)
Only one spouse can be considered a first-time homebuyer and can claim their portion of the rebate (typically 50%).
Scenario 3: One Spouse Has Owned a Home (During Marriage)
Neither spouse can be considered a first-time homebuyer nor claim the rebate because the land transfer tax rules assume shared homeownership during the marriage.
| Spouse 1 Owns A Home? | Spouse 2 Owns A Home? | Rebate Claim |
|---|---|---|
| No | No | ✅ Can Claim 100% |
| Yes (Before Marriage) | No | ⚠️ Spouse 2 Can Claim 50% |
| Yes (During Marriage) | No | ❌ Cannot Claim |
| Yes | Yes | ❌ Cannot Claim |
If you are purchasing a $450,000 Toronto home and qualify for the FTHB rebate, your calculation will look like this:
- Purchase Price: $450,000
- Ontario Land Transfer Tax: $5,475
- Toronto Land Transfer Tax: $5,475
- Rebate: $8,475
This rebate combines Ontario's maximum rebate of $4,000 and Toronto's maximum rebate of $4,475. This means that with the Provincial and Municipal rebate taken into consideration, you are only paying $2,475 in tax.
Your lawyer will review this with you during the final closing and apply this rebate. Any deductions to this rebate will be applied to your closing costs. However, any amount above the maximum refund must be paid at closing.
How to Apply for the Land Transfer Tax Rebate
Typically, your real estate lawyer handles the land transfer rebate during the closing process, usually at the time of registration or a week before closing.
Your lawyer will confirm your eligibility for the rebate as a first-time homebuyer and have you sign the necessary forms, submitting everything electronically when registering the property title. Since you pay land transfer tax at registration, the rebate applies instantly, saving you from paying the full amount upfront.
Pro Tip: Lawyers are humans, and mistakes can happen. Always review your Statement of Adjustments before closing to ensure it includes the rebate and that all details are accurate.
If your lawyer forgets to confirm your first-time homebuyer status or forgets to apply the rebate, you may still apply to claim the rebate through the Ontario Ministry of Finance within 18 months of registering the property. Simply submit the package of documents, including proof of eligibility and completed required documentation. You may also claim the rebate through the electronic land registration system or by filing paperwork at the Land Registry Office.
Calculating land transfer tax requires a lot of valuable information, yet many home buyers and investors don't consider this cost when they purchase a pre-construction condo.
However, our Platinum Agents will be happy to answer any questions you may have about Land Transfer Tax and the first-time home buyer rebate. So, you will never have to worry about this cost throughout your home-buying journey.
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