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Tag: property tax

  • I Received the Previous Owner’s Bill. What Should I Do?

    I Received the Previous Owner’s Bill. What Should I Do?

    You’ve spent the first month living in your new home and you couldn’t be happier. 

    However, when you go to check the mail, you notice a most unwelcome surprise. The city indicates there is an amount owing from the previous owner’s bill.

    Your first thought might be malicious intent on the side of the seller, them trying to get away without properly taking care of their bills. However, chances are that this is probably not the case. The most likely scenario is that the previous owner's bill was never sent to them, or, on occasion, the municipality did not process the change of ownership in a timely manner.

    Commonly, bills such as water and property taxes are connected with the property, while utilities such as hydro and natural gas are associated with the consumer. Therefore, while a title changes ownership, water and property taxes continue to accumulate charges to the account associated with the property even as the owner’s name is changed on the accounts. This common mistake sometimes leaves the new homeowner with the leftover bill of the seller. 

    If you find yourself in the situation of having to deal with a previous owner's bill, worry not, below we’ve outlined the exact steps you should take to resolve things. 

    Key Takeaways:

    • • Water bills and property taxes are associated with a property instead of a customer like utilities. This means you will sometimes see arrears on your water bills and property taxes from previous property owners.
    • • To deal with an arrears on your water bill contact your lawyer and have them contact the seller to request payment.
    • • Dealing with property tax arrears are more common on new homes and require your lawyer to contact the builder’s lawyer to adjust. 
    • • While arrears on your bill are a common post-closing issue and are often easy to solve, it is an excellent example of the benefits of title insurance.

    What Should You Do with Arrears on Your Water Bill?

    If you notice that there are arrears on your water bill from a previous property owner, the first thing you should do is contact your real estate lawyer and provide them a copy of the bill. Your lawyer will then contact the seller’s lawyer, who will then contact the seller directly to request payment of the bill. 

    If you do not receive a reply from the seller you are left with two options. If you have title insurance, you may submit a claim to your insurer. If you already paid the bill, the title insurer will reimburse you directly.  If you did not pay the bill, the title insurer will pay the bill on your behalf. However, if you do not have title insurance, your choices would be to either take the seller to court which would be costly and time consuming, or pay off the bill yourself. 

    What Should You Do with Arrears on Your Property Taxes?

    Property tax arrears on existing homes are rarely an issue after closing because they are known and adjusted at closing. However, if they are discovered, contacting your lawyer and following a similar format as you would for the above water bill situation is the best scenario.  

    However, if the property you are purchasing is a new home, then it is likely that the property taxes need to be adjusted with the builder after closing. It typically takes several months for a new property to be assessed. Once that happens, the new owner will receive a supplementary property tax bill.

    When you receive your supplementary property tax bill, we recommend you contact your lawyer to ensure everything is in order before contacting the builder’s lawyer to properly adjust the bill between the parties.

    More often than not, the builder will pay their portion of the bill to the new owners to reimburse them for paying the entire bill. Each builder has different policies in adjusting for property taxes therefore it is usually best to leave discussions up to your lawyer when getting reimbursed. 

    Final Thoughts

    Adjusting after closing for arrears on your bills is often a common post-closing situation and most of the times can be resolved fairly quickly.

    If all sides are cooperating, then the adjustment can be taken care of quickly and seamlessly. However, it’s recommended you always consult with an expert when dealing with these issues to avoid any mishaps. If you have any further questions, rest assured that the Deeded team is here to support you in any way we can.

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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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