Land Transfer Tax Refunds for Ontario First Time Home Buyers:
When you purchase land or an interest in land anywhere in Ontario, you pay land transfer tax. This is calculated using a series of marginal tax rates multiplied by a portion of the purchase price. However, luckily for first time buyers there is a rebate to help save you money on the amount owed - if not all of it! The government pays up to $4000 of land transfer tax, and depending on the purchase price of your new home, you may not have to pay anything at all.
In order to determine what the land transfer tax of any property is, you will need to use the calculation chart shown below:
SO, WHAT DOES THIS MEAN?
To break it down, the average first time home buyer within the Waterloo and Wellington regions (Kitchener, Waterloo, Cambridge, and Guelph) are usually within the $350,000 – $500,000 range.
Let’s say you purchase a home in Kitchener for $400,000. Your land transfer tax would be then be $4475. Since the rebate program covers up to $4000, you would only owe $475 - pretty sweet, right?
Therefore, if you were to purchase something for $368,00 or less – you wouldn’t have to pay any land transfer tax at all!
If you're interested in how I got those numbers all calculation details are at the bottom of this page. If not, don't worry I double checked my math ;)
HOW DO I QUALIFY?
In order to qualify for the land transfer tax rebate, you must meet the province’s requirements:
Purchaser must be at least 18 years old
Purchaser must occupy the home as their principal residence within nine months of the date of transfer
The purchaser cannot have ever owned an eligible home, or an interest in an eligible home, anywhere in the world, at any time.
If the purchaser has a spouse, the spouse cannot have owned an eligible home or had any ownership interest in an eligible home, anywhere in the world, while he or she was the purchaser’s spouse. If this is the case, no refund is available to either spouse.
*It’s important to note here that the word “spouse” does not necessarily mean someone you are legally married to. At the bottom of the page I have outlined how The Ontario Ministry of Finance website defines “spouse”
DOES IT CHANGE IF I HAVE A CO-SIGNER/NOT BUYING THE HOUSE ALONE?
A lot of first time buyers have help in order to afford their first home. Sometimes this means you will have a parent or guardian co-sign the mortgage loan for you, which does affect some aspects of the first time buyer program. If this is the case, the Ontario website states that the “refund will be reduced if one (or more) of the purchasers is not a first-time homebuyer. The refund will be proportionate to the interest acquired by the individuals who qualify for the refund."
To better explain what that means, let's look at an example using a parent and child:
I.E: If the parent is not a first time buyer, but the child is, and they purchase a home with 50/50 interest in the property – the child may claim a refund for their portion – i.e. 50% of the land transfer tax, provided it does not exceed 50% of the maximum allowable refund (50% of $4000).
In the case where a parent is also on title to the child’s property – such as when a bank requires it for the mortgage – it will be necessary to pay the land transfer tax at the time of registration and then apply for a refund from the Ministry of Finance afterwards. However, if the parent does not acquire a beneficial interest in the property and is merely on title for trustee purposes, then the child would qualify for the refund provided they meet all other requirements.
Regardless if you buy your first house on your own or not, majority of first time buyers do qualify for the land transfer tax rebate, whether it's for all of it or a portion, but hey - every dollar you can save counts!
Thanks for reading!
Calculations and "spouse" definition are below ↓
THE MATH:
Here is how I calculated the land transfer tax at the beginning of this blog (referencing the chart above):
Your total purchase price is $400,000.
Therefore, you fall into the third tax rate, so you need to do 3 separate calculations:
First you use tax rate 1 for the first $55,000 dollars of the purchase price:
Calculation 1
Tax Rate 1: 55,000 x 0.5% = $275
Your purchase price exceeds $250,000 so you take tax rate 2, minus the 55,000 we already calculated, and multiple it by $195,000 (250,000-55,000).
Calculation 2:
Tax Rate 2: 195,000 x 1.0% = $1950
Lastly, you take the third rate (1.5%) and multiply it by the remainder of the purchase price;
400,000 – 250,000 = 150,000.
Calculation 3:
Tax Rate 3: 150,000 x 1.5% = $2250
Add the values: $275 + $1950 + $2250 = $4475
Total land transfer = $4475
The Ontario government covers up to $4000, so you would be left to pay the remainder of $475.00.
(4475 - 4000 = 475).
SPOUSE DEFINITION ACCORDING TO ONT GOVT.
At present, "spouse" means either of two persons who,
(a) are married to each other, or
(b) have together entered into a marriage that is voidable or void, in good faith on the part of a person relying on this clause to assert any right, and in addition includes either of two persons who are not married to each other and have cohabited,
(a) continuously for a period of not less than three years, or
(b) in a relationship of some permanence, if they are the natural or adoptive parents of a child.
Therefore, if you have been living with your significant other for 3 years or more – who owns, owned, or bought a property while you were together, or you have a child together – you don’t qualify.
SPOUSE:
A qualifying purchaser may also claim a refund in proportion to his or her spouse's interest if that purchaser's spouse has owned a home before becoming the purchaser's spouse, but not while being that purchaser's spouse.
The ability of a purchaser to include his or her spouse’s interest in determining the maximum refund is restricted if the spouse is not a Canadian citizen or a permanent resident of Canada on the date of the conveyance or disposition
If partners are buying a home together where one of them has previously owned a home, and one has not – then they may still claim a refund. It all comes down to the government’s definition of spouse, as well as timelines.
If you are not spouses, then your partner may claim a refund based on his interest acquired in the home. If you are spouses, and both of you are Canadian citizens or permanent residents of Canada, your partner may claim a refund up to the maximum refund amount applicable to your transaction (you can claim the refund for your interest and your partner's interest), as long as you did not own a home while you were each other's spouse. If you did own the home while you were spouses of each other, then your partner does not qualify for a refund even if you did not live in the house together.
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