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Tag: land transfer tax

  • Land Transfer Tax. What Is It and How To Budget For It.

    Land Transfer Tax. What Is It and How To Budget For It.

    You’ve signed on the dotted line and your offer was accepted.   Congratulations on your new home! As you start readying your finances for closing, one of the top items that first-time home buyers forget to budget for is the land transfer tax (LTT for short).

    What is The LTT?

    Buyers of houses and condos in Ontario pay LTT when they purchase a property. Buyers who are purchasing a property in the City of Toronto also get to pay the Toronto LTT, on top of the Ontario LTT amount.

    With rising property pricing the LTT can be significant.  To give you an idea, on a $1M property in the City of Toronto, you’d be paying $32,950 in LTT.  This amount is due on closing and is collected by your lawyer and remitted to the government.  The LTT applies to all properties:  resale or new construction.

    The land transfer tax amounts are calculated on a sliding scale formula, but to make things easier, use our simple Land Transfer Tax calculator where you can plug in your purchase price and save yourself the number crunching. 

    There is some good news for first-time buyers.  You may qualify for a rebate equal to the full amount of your LTT, up to a maximum of $4,000.

    Do I Qualify for the Ontario Land Transfer Tax Refund?

    To qualify for the Ontario Land Transfer Tax Refund for First-Time Homebuyers, you must meet the following criteria:

    • • You must be a Canadian citizen or permanent resident of Canada,
    • • You must be 18 years of age or older,
    • • You must live in the home within 9 months of purchasing it,
    • • You cannot have owned a home before, and
    • • If you have a spouse, they cannot have owned a home during the time they have been your spouse.

    If you’re planning on buying a house or condo, make sure you’ve budgeted for land transfer tax.

    Important note: This article is not Legal Advice.  No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.

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  • The Ultimate Guide to Programs for First-Time Home Buyers

    The Ultimate Guide to Programs for First-Time Home Buyers

    As a first-time home buyer, you may qualify for several government programs that can help you offset the costs of buying your home and use your RRSP savings as part of your down payment.

    We’ve assembled information on the most relevant programs but as regulations and programs are subject to change, we recommend checking with us or your accountant when it comes to your eligibility for these programs.

    First-time Home Buyers Incentive

    The First-Time Home Buyers Incentive helps qualified first-time homebuyers reduce their monthly mortgage payments without adding to their financial burdens.

    The First-Time Home Buyers Incentive is a shared-equity mortgage with the Government of Canada where the government has a shared investment in the home.  It offers:

    • • 5% or 10% for a first-time buyer’s purchase of a newly constructed home
    • • 5% for a first-time buyer’s purchase of a resale (existing) home
    • • 5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home
    • • If you participate in this program, the government, as an equity owner, shares in both the upside and downside of the property value.

    You will have to repay the incentive based on the property’s fair market value at the time of repayment. If a homebuyer received a 10% incentive, they would repay 10% of the home’s value at the time of repayment.

    For example, you purchased a home at $350K and received $35K from the program.  If you sell it a few years down the road for $500K, you would repay the government $50K for their equity stake. 

    The homebuyer must repay the incentive after 25 years, or when the property is sold, whichever comes first. The homebuyer can also repay the incentive in full any time before, without a pre-payment penalty.

    Eligibility For The First-time Home Buyers Incentive

    These are the few criteria to determine if you are eligible for the First-Time Home Buyer Incentive:

    • • Your total annual qualifying income doesn’t exceed $120,000
    • • Your total borrowing is no more than 4 times your qualifying income
    • • You or your partner are a first-time homebuyer
    • • You are a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada
    • • You meet the minimum down payment requirements with traditional funds (savings, withdrawal/collapse of a Registered Retirement Savings Plan (RRSP), or a non-repayable financial gift from a relative/immediate family member)

    First-time Home Buyer Tax Credit

    The Government of Canada provides a tax credit for first-time home buyers.  After you purchase your first home and submit your tax return, you can access this tax credit.  If you are an eligible homebuyer, you can apply for the First-Time Home Buyer’s Tax Credit, which equates to a total tax rebate of approximately $750.  

    Eligibility For The First-time Home Buyer Tax Credit

    To be eligible for the Home Buyers’ Tax Credit, you must meet both of these criteria:

    • • You or your spouse or common-law partner purchased a qualifying home.
    • • You are a first-time home buyer, which means that you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years.

    A qualifying home is almost any type of home as long as it is located in Canada and registered in your or your spouse or common-law partner’s name. This includes existing homes and homes under construction.

    If you are eligible, you can claim a tax credit of $5000 on line 31270 of your tax return, however, we highly encourage speaking with your accountant to ensure you meet all qualification criteria.

    RRSP Home Buyers' Plan

    One great source of funding for your mortgage down payment is a Registered Retirement Savings Plan (RRSP). The Canadian government's Home Buyers' Plan (HBP) allows first time home buyers to borrow up to $35,000 from your RRSP for a down payment, tax-free.

    If you're purchasing with someone who is also a first-time homebuyer, you can both access up to $35,000 from your RRSP for a combined total of up to $70,000. Think of the HBP as a tax-free loan to yourself to fund your down payment.  The only catch is that it must be repaid within 15 years.   Repayment is as simple as designating an HBP repayment amount on your annual tax return, but please beware that there will be a minimum amount required to be repaid each year, so budget accordingly.

    Eligibility For The RRSP Home Buyers' Plan

    In order to be eligible for the HBP as a first-time homebuyer, you must meet the following criteria:

    • • You must be considered a first-time home buyer.  You are considered a first-time home buyer if, in the four-year period (that begins on January 1st of the fourth year before the year you withdraw the funds) , you did not occupy a home that you or your current spouse or common-law partner owned.
    • • You must have a written agreement to buy or build a qualifying home, either for yourself or for a related person with a disability
    • • You intend to live in the home within one year of purchase as your primary residence
    • • The RRSP funds you borrow must have been in your registered (RRSP) account for at least 90 days prior to withdrawal
    • • You must make the withdrawal from your RRSP within 30 days of taking title of the home
    • • You must be a Canadian resident

    Land Transfer Tax Rebate for First-time homebuyers

    Land transfer taxes are paid to the government at closing. To calculate what you may owe on closing, click here for our calculator.

    First-time homebuyers in Ontario can qualify for a rebate equal to the full amount of their land transfer tax, up to a maximum of $4,000.

    To qualify for the Ontario Land Transfer Tax Refund for First-Time Homebuyers, you must meet the following criteria:

    • • You must be a Canadian citizen or permanent resident of Canada,
    • • You must be 18 years of age or older,
    • • You must live in the home within 9 months of purchasing it,
    • • You cannot have owned/had a financial interest in a home before, and
    • • If you have a spouse, they cannot have owned a home during the time they have been your spouse.

    Based on the Ontario land transfer tax rates, the rebate will cover the full tax amount up to a maximum home purchase price of $368,333.  For homes with purchase prices over $368,333, homebuyers will qualify for the maximum rebate, but will still owe the remainder of their land transfer tax. If you are buying your home with your spouse, but only one of you qualifies for this rebate, you can still receive 50% of the rebate.

    If you qualify, Deeded can help you file the necessary paperwork to get the rebate. Contact our team and we can help you get started on the process to claim you're rebates immediately.

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  • Hello New Home, Hello New Property Taxes.

    Hello New Home, Hello New Property Taxes.

    Buying a home is exciting.  Taxes are not. While this is the topic that everyone loves to ignore, buying or selling a home in Ontario does come with quite a few tax implications.  The more you know about them, the less stressed you’ll be down the road. 

    In this blog, we’ll dive into:

    • • Land transfer taxes
    • • Property taxes
    • • HST (Harmonized Sales Tax)
    • • Capital gains taxes
    • • Income tax implications

    Land Transfer Taxes

    In Ontario, the buyer is on the hook for a land transfer tax payment that is due on closing.  Given the average property price in your market, this can be a significant amount that you’ll need to plan for.  Here’s how it’s calculated.

    Ontario Land Transfer Tax:

    • • 0.5% of the value of the property up to and including $55,000
    • • 1% of the value which exceeds $55,000 up to and including $250,000
    • • 1.5% of the value which exceeds $250,000 up to and including $400,000
    • • 2% of the value between $400,000 and $2,000,000
    • • 2.5% for amounts exceeding $2,000,000, where the land contains one or two single family residences

    If you’re buying in the city of Toronto, you’ll also be paying a second land transfer tax .

    Toronto Land Transfer Tax

    • • 0.5% up to and including the first $55,000
    • • 1% of the value which exceeds $55,000 up to and including $250,000
    • • 1.5% of the value between $250,000 and $400,000
    • • 2% of the value between $400,000 and $2,000,000
    • • 2.5% of the value over $2,000,000

    Before you start creating excel spreadsheets and dusting off your calculator, our land transfer tax calculator will help you figure out what you will owe. 

    If you’re a first time buyer, you’re in luck (pending some conditions, of course,  you may be eligible to receive a refund for all or part of the land-transfer tax – click here for details of the Land Transfer Tax Refund Program.  Our calculator factors in any first-time buyer rebates, so once again, no need for number crunching on your part.

    Property Taxes

    Your property taxes will vary based on your municipality.  

    If your property is in the city of Toronto, you can check how much property taxes are by using the City of Toronto property tax calculator..  Other municipalities may offer similar calculators on their website. 

    The amount of your property tax is calculated on the phased-in property assessment value of your property, determined by MPAC (Municipal Property Assessment Corporation). You can read all about how MPAC determines the value of your property here.

    MPAC property assessments are usually lower than current market value so if paid $1,000,000 for your house, MPAC’s assessment probably has you paying taxes on a much lower assessed value.

    Depending on what you sign up for, property taxes are due in either two instalments (March and July); 6 instalments (March, April, May, July, August and September); or in 11 instalments (due every month except January). 

    Increases In Property Values Will Impact Your Property Taxes

    Do you plan to finish the basement or do a significant renovation, like an addition to your home?  You will likely be re-assessed for tax purposes and your taxes will increase.

    New Construction Homes

    MPAC usually assesses newly built homes within 6 months.  In the meantime, you may be responsible for paying the taxes on the land value of your property.  The most important thing to remember is that once the MPAC assessment is completed, the city will bill you for property taxes owed from the date of possession.   For most people, it’s a shock when they get their first property tax bill that is a lot larger than what they had expected. A good tip is to always set money aside to cover your first property tax bill.

    HST

    To say the HST is confusing is an understatement.  Here’s how we boil it down.

    Resale Homes

    • • HST is NOT payable on resale properties in Ontario
    • • If a residential property is used partially as commercial, HST would be payable on the percentage that was used as commercial
    • • HST may be payable on a highly renovated home (but rebates may apply)

    Vacant Land

    • • HST is not payable on vacant land (personal use only)

    Newly Constructed Houses and Condos

    • • HST applies to new construction homes
    • • Federal and provincial rebates are available in some cases
    • • Most builders will factor the HST and the HST rebate into the purchase price of the home, though some will not, so if you’re buying pre-construction, make sure to ask and have your lawyer review the agreement.
    • • To qualify for the rebate from the builder, the home must be the primary residence of the purchaser or one of their immediate blood-relatives and you’ll be required to submit proof if an audit ever occurs.
    • • If you are buying a property as an investor, you don’t qualify for the rebate automatically. Plan to pay the builder the full amount of the HST on closing and you can apply for a rebate after you’ve signed a one-year lease agreement with a tenant.  This basically means that you may be fronting the HST for a few months until the rebate is processed and approved.

    Commercial Properties

    • • HST is payable on commercial properties

    REALTOR Commissions and Legal Fees

    • • All REALTOR commissions are subject to HST
    • • HST is payable on real estate legal fees

    When closing your purchase or sale with Deeded, we apply the appropriate taxes to your closing and can help guide you through complex processes such as filling for an HST tax rebate or refund.

    Capital Gains Tax

    When you earn money on an investment, you’re subject to a capital gains tax on the amount you’ve profited.  

    The good news is that if your home is your principal residence (the home you live in), you won’t have to pay capital gains taxes.  You can only have one principal residence and may be asked to provide proof that you live in the house if audited.

    If you’re selling an investment property, even if a part of it has been rented in the past, you may be on the hook for capital gains tax that will be paid on 50% of the gain.  For example, if you bought a condo at $500K, rented it out for a couple of years and later sold it for $750K, you will pay taxes on $125K (50% of the $250K you made, less selling expenses).   

    Your taxes will be calculated after the capital gains have been added to your income for the year so if make $100K and followed our example, another $125K in income will be added to your overall income, putting you at a higher tax bracket.

    It is important to involve your accountant or financial planner before buying or selling an investment property to account for the tax implications according to the latest rules from the CRA>

    Income Tax

    If you are flipping your home or if that’s your full-time job, you’ll be taxed on the full income you make between what you bought and sold the property for, less your expenses.

    If you’re going to be a landlord and rent your property out, the rents you collect will be added to your income, less expenses that are associated with the rental property (like property taxes, interest on your mortgage, advertising, renovations, etc.)

    If you’re in the business of flipping houses, the CRA will want a piece of the action in the form of income tax. If flipping is your main gig or forms a substantial part of your income, the CRA will consider it active income and you’ll be taxed at the usual income tax rates.

    Our final take is this. Taxes can be complicated and every situation is different.  The best you can do is become aware of tax implications and plan ahead for them. There’s no worse situation than having to come up with an extra $50K at closing because there’s something you missed or were not told along the way.   

    It is always worth a brief conversation with your lawyer and accountant before you buy or sell a property to understand your obligations and tax liabilities.  You’d be amazed by how much a 10 minute conversation can save you.

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