Far too many times a week I receive a call from a prospective client with a question regarding taxes related to real estate transactions. We all hate to think about taxes, but there is no escaping them – even in real estate.
The subject of taxes is far too complicated and vast of a topic to be covered by one blog, so in this blog we will focus on three types of taxes related to real estate transactions: Land Transfer Tax, HST, and Capital Gains Tax.
Land Transfer Tax
Land Transfer Tax (or “LTT”) is, as the name applies, a tax payable on the transfer of land. While there are some limited exceptions, LTT is payable in majority of real estate transactions, including purchases and title transfers. It applies to all kinds of property, including vacant land, commercial, and residential properties.
There are two types of LTT in Ontario; provincial Land Transfer Tax that is applicable in every transaction within the province, and the Toronto Municipal Land Transfer Tax payable on all transaction related to property located within the city of Toronto. Both are calculated based on the purchase price. There are many calculators available online to assist you in determining the amount of tax payabe.
There is a rebate for first-time home buyers for the maximum amounts of $4,000 for Ontario Land Transfer Tax and $4,475 for the Toronto Municipal Land Transfer Tax. To receive the rebate you must be first-time buyer and have never owned a home anywhere in the world and you must occupy the property as you principal residence within nine months of the closing date.
HST
HST, or Harmonized Sales Tax, generally comes into play when you are purchasing a commercial property, or a newly-built residential property directly from the builder.
There is a HST rebate for up-to $24,000 for newly-built residential properties. The rebate is available for both investment properties and principal residences, however you must apply for the rebate directly with CRA with respect to investment properties.
HST generally does not apply to re-sale residential homes, with a few small exceptions. HST will generally apply to all commercial properties, unless the purchaser is a HST registrant which allows them to remit the HST payable to the CRA directly at the end of the taxation year, rather than on the closing date.
HST may or may not apply on the purchase of a vacant land, it is best to seek advice on this matter with your accountant.
Capital Gains Tax
Capital Gains Tax is generally not dealt with by real estate lawyers, rather it is calculated and paid for at the end of the taxation year by the client directly, working with their accountant.
Capital Gains Tax is applicable on commercial and investment properties and it is based on the increase in value of the property from the date of purchase. Until very recently, capital gains tax was calculated based on straight 50% of the increase in value of the property during the period of ownership. As of yesterday (June 25, 2024), capital gains tax is now calculated based on 50% of the increase in value up to $250,000, with any increase in value beyond $250,000 being now taxed at a rate of 67%. These amounts must be reported in your personal income tax filing. Primary residences are exempt from Capital Gains Tax.
Taxes in real estate can be a complicated issue and there are rarely any simple answers. It is important that you consult with your accountant regarding any potential tax issues, including prior to signing an Agreement of Purchase and Sale.
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This WARDS LAWYERS PC publication is for general information only. It is not legal advice, nor is it intended to be. Specific or more information may be necessary before advice could be provided for your particular circumstances.
