What Homeowners of Canada Need to Know as A First Time Buyer

Posted on February 25, 2021

Did you know that, according to Toronto Storeys, Canada has one of the highest rates of homeownership in the world? In fact, in 2017, over 40% of Canadians under 35 owned their own homes.

If you would like to become one of the homeowners of Canada, then you need to know about all the costs to expect. One of these costs is the First-Time Buyer Land Transfer Tax.

You might have questions about this tax, such as: What is the Land Transfer Tax, and how much do I have to pay for it? Can I get a First-Time Homebuyer Credit or rebate when I pay?

If you don’t have the answers to these questions, you might feel stressed. After all, you already have so much you’re dealing with.

You’re packing for your move, you’re dealing with the complicated emotions of moving, and you’re paying so many other fees.

That’s why we’ve put together this article. Once you know what you need to about the First-Time Homebuyer Land Transfer Tax, you’ll know exactly how much you have to pay and how much you can get back. Read on to learn more.

What Is the Land Transfer Tax?

When you’re a first-time buyer, the Land Transfer Tax is an additional cost you’ll have to consider. Many new homebuyers don’t even know that this is something they will have to pay, which is why it’s so important for you to be informed about what the Land Transfer Tax is.

The Land Transfer Tax (which is also called the Welcome Tax or the Property Transfer Tax) was first introduced in Quebec and Ontario in the 1970s.

Municipalities, which cannot tax many other usual tax sources like sales and income, used this tax as a way of generating revenue.

When the Land Transfer Tax is paid, it’s the new homeowner (the buyer) who pays it, not the home seller. This tax is paid to the municipality or province the homebuyer has moved to.

Depending on what province or city you’re in, you might be eligible for a refund of part or all of the Land Transfer Tax. We’ll cover that a little later in this article.

As a first-time homebuyer in Canada, you should also be aware that the Land Transfer Tax can be higher in certain metropolitan areas.

For example, if you’re based in Toronto, your Land Transfer Tax will be higher than if you were living in Ottawa.

How Much Will It Cost?

If you’re a first-time Canadian homebuyer, then you’ll be new to the process of paying Land Transfer Tax and won’t know how much you have to pay. The simple answer to “How much will it cost?” is that it varies.

This is because different provinces and municipalities will ask you to pay different amounts.

Generally speaking, the tax amount is calculated from the sale price of the property and land. It might also be calculated from the land’s fair market value.

If you want to budget for this tax amount before you get the exact number, you should be aware that it usually ends up coming out to 1% to 1.5% of the value of your new property.

It’s important to know that you can’t use mortgage payments to pay this tax.

This means that you need to pay the tax in full after you’ve purchased your home. So, if you don’t have the money, then you need to wait before you buy your home or find a lender who will provide you with the funds.

Some Calculations

Here are some examples of how much you might pay for the Land Transfer Tax in different parts of Canada.

If you’re buying a home in Ottawa, Ontario, you’ll have to pay $2,975 for a home that costs $300,000. However, because you’re exempt for up to $4,000 as a first-time homebuyer in Ontario, you wouldn’t have to pay anything.

In Montreal, you would have to pay $3,000 for a home that costs $300,000. In Vancouver, you would have to pay $4,000 for a home that costs $300,000.

Confused yet? Don’t worry. Most municipalities and provinces have a calculator on their website that can help you calculate how much you’ll need to pay for the Land Transfer Tax.

All you have to do is put in the purchase price of your new property and whether you’re a first-time homebuyer in Canada.

When You Pay the Land Transfer Tax

When you pay the Land Transfer Tax can vary since it’s a tax you pay in different municipalities, cities, and provinces. Usually, however, you’ll pay it when you take possession of your new property.

You don’t have to do anything yourself.

Your lawyer will manage this for you. He or she will arrange the date you pay so that you do it on closing day when the deed is transferred from the previous owner to you.

Remember that you make the Land Transfer Tax payment only once. This is different than property taxes, for example, which you pay annually.

Can You Be Exempt?

If you’re a first-time Canadian homebuyer, you’re probably asking yourself: “Can I be exempt from paying the Land Transfer Tax?” The answer is that, yes, in some specific cases, you can be exempt from paying this tax.

Even though this won’t apply if you’re a first-time homebuyer, it’s important to know this for the future.

In Ontario, you might not have to pay the Land Transfer Tax if you’re going through separation proceedings and your spouse is transferring the property you both used to own, to you.

If you’re a first-time homebuyer buying a home from a lineal descendant—this includes your mother, father, sister, or brother—then you will be exempt in some cities from paying the Land Transfer Tax. In the entire province of Quebec, you are exempt in this case.

Additionally, some cities will offer subsidies if you’re purchasing a condo.

Whatever type of property you’re buying, you should check with the administration of the municipality you’re buying the property in to find out if you’re qualified to get a tax exemption or subsidy.

You need to research this, just like you would when researching estate and inheritance tax.

You can also get a refund for paying your Land Tax Transfer. This is called the Land Transfer Tax Rebate, which we’ll cover in the next section.

The Land Transfer Tax Rebate

If you’re a first-time buyer, the Land Transfer Tax can be quite costly. After all, if it’s your first time buying a house, then you’ve had to save up for the mortgage as opposed to having funds from the sale of your home.

For this reason, and to encourage home-buying, some cities and provinces offer the Land Transfer Tax Rebate.

This rebate is available in the provinces of Prince Edward Island, British Columbia, and Ontario. Additionally, it’s available if you buy a home for the first time in Toronto.

Prince Edward Island Land Transfer Tax Rebate

The maximum rebate you can get if you’re buying a house for the first time in Prince Edward Island is $2,000. To qualify for this tax rebate, you need to meet certain criteria. These criteria include that you have to be a permanent resident of Canada or a Canadian citizen, that you’re 18 years old or older, and that you haven’t owned a home before.

Additionally, you must have been—before registering your property—living in Prince Edward Island for six consecutive months.

Alternatively, you must have filed in the past six years two income tax returns in Prince Edward Island.

British Columbia Land Transfer Tax Rebate

If you’re a first-time homebuyer in British Columbia, you can get a maximum rebate of $8,000. To qualify for this tax rebate, you need to meet certain criteria. These criteria include that you’re a permanent resident of Canada or a Canadian citizen, and you haven’t owned a home before.

Additionally, before registering your new property, you must have lived for 12 consecutive months in British Columbia.

Otherwise, in the past six years, you must have filed two income tax returns that show you lived in British Columbia.

Ontario Land Transfer Tax Rebate

If you’re a first-time homebuyer in Ontario, you can get a maximum rebate of $4,000. To qualify for this tax rebate, you need to meet certain criteria. These criteria include that you must be a permanent resident of Canada or a Canadian citizen, you must be 18 years old or older, and you have to be living in the home within the first nine months of purchasing it.

Additionally, you must be a first-time home buyer in Canada, and your spouse can’t have owned a home while you have been married.

Considering the maximum amount, you won’t have to pay anything at all if the home you purchase costs $368,333 or less. If it costs more than that, you’ll have to pay the additional amount of the Land Transfer Tax.

If you or your spouse don’t both qualify, but one of you does, you can still get a 50% rebate.

Toronto Land Transfer Tax Rebate

If you’re buying a property for the first time in Toronto, the maximum Land Transfer Tax Rebate you can get is $4,475. It’s not only if you’re buying a house that this rebate applies. You can also buy a condo or townhouse and get this rebate.

Keep in mind that, even though Toronto is in Ontario, they have separate Land Transfer Tax Rebates.

This is because Toronto is quite expensive. Considering the cost of homes and the cost of living there, the rebate is slightly higher than in other parts of Ontario.

One great perk? You can qualify for both the Toronto Land Transfer Tax Rebate and the Ontario Land Transfer Tax Rebate. As a result, you can save quite a lot of money.

To qualify for this rebate, you need to meet certain criteria.

These criteria include that you have to be a permanent resident of Canada or a Canadian citizen, you must live in the new home you’ve bought within nine months of purchasing it, and you must be 18 years old or older.

Additionally, you can’t have owned a home before. If you’re married and your spouse has owned a home during the time you’ve been married, you don’t fully qualify.

However, you can still get 50% of the rebate if it’s the first time buying a home for one of you.

Considering the maximum limit of the Toronto Land Transfer Tax Rebate, you can buy a new home for $400,000 or less and get all the money you pay for the tax back.

However, if you’re buying a house that costs more than $400,000, you’ll have to pay the rest of the tax that’s left.

More Information for Homeowners of Canada

While there are many other factors and costs involved in buying a home, understanding the land transfer tax is a great way to begin the journey for you and your family to become one of the homeowners of Canada.  

Have you thought about which mortgage lender you will use? We recommend giving Breezeful a try. Breezeful is a digital mortgage broker that allows you to search 30+ lenders to find the most competitive rates. Through Breezeful’s online portal, you can easily and quickly apply for a mortgage, upload necessary documents, and track your approval in real time.

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