Are you a first-time homebuyer in Ontario? Then there is potentially good news for you! Those of you with an agreement of purchase and sale that closes after January 1, 2017 may be eligible for an increased Land Transfer Tax Refund of up to $4,000. This is a fairly hefty increase from the former maximum, which was $2,000. Here are the details:
When does the increased refund amount kick in?
The higher maximum is available January 1, 2017, if certain conditions are fulfilled. And note that it potentially applies to agreements of purchase and sale that cover both newly-constructed and resale homes.
What makes me eligible?
To be eligible to claim a refund of the LTT, you must be a first-time homebuyer, which is specifically defined to mean that you must: Be at least 18 years old; Not have ever owned an eligible home, or an interest in an eligible home, anywhere in the world, at any time; Not have a spouse that has owned a home or an interest in a home anywhere in the world while he or she was your spouse; Must be occupied as a principal residence. In other words, if you have owned a home previously, then you do not qualify for the LTT Refund for first-time homebuyers. The method that you acquired the home (e.g., purchase, gift or through an inheritance) is not relevant. Also, as a buyer you cannot have previously received a refund of LTT under the Ontario Home Ownership Savings Plan (OHOSP). Note that effective January 1, 2017, there is a new eligibility requirement: In order to qualify for the refund, you must be a Canadian citizen and a permanent resident of Canada. (However, as a transitional measure, if you are a buyer who entered into an agreement of purchase and sale on or before November 14, 2016, then you can be eligible for the refund regardless of your citizenship or residency status. There are also transitional rules and an 18-month qualifying period if you are otherwise eligible for refund at the time the transaction closes, but do not have the required citizenship or permanent residency status).
How do I apply for the refund?
If you are a qualifying first-time homebuyer, then you may claim the refund in one of two ways:
If your transfer is being registered electronically: your lawyer will complete the required statements in an affidavit that is filed as part of the Electronic Land Registration process.
If your transfer is being registered by the more traditional paper-based system, then you must file an "Ontario Land Transfer Tax Refund Affidavit For First Time Purchasers of Eligible Homes" form which is available at your local Land Registry Office.
If the refund is claimed at the time of registration, it may offset the LTT that would be payable. If the refund is not claimed at registration, the tax must be paid, and a claim for the refund may be submitted to the Ministry of Finance.
How much of a refund might I get?
If your house purchase occurred before January 1, 2017, the maximum amount of the refund you were eligible for was $2,000. Beginning January 1, 2017, however, the maximum amount of the refund is $4,000. (And note that in either case there is no interest paid by the government on your refund). But just to be clear: this increased limit of $4,000 applies only to purchases that close on or after January 1, 2017, regardless of the date the agreement of purchase and sale was signed. This maximum means that after January 1, 2017, and if you are a qualifying first-time homebuyer buying an eligible home, you will pay no LTT on the first $368,000 of the value of the consideration. If you are a first-time homebuyer purchasing a home that costs more than $368,000, then the maximum refund that you will receive is still $4,000.
What if one buyer qualifies for the refund but the other does not?
If one or more of the buyers of a property is not a first-time homebuyer, then the refund is proportionate to whatever interest the qualifying buyer has in the property. For example, let's say you and your adult child decide to buy a house together on a 50-50 basis. If you are not a first-time homebuyer but your child is, then your child will be able to claim 50% of the LTT refund. (However, that 50% cannot exceed 50% of the maximum allowable refund — that equates to 50% of $2,000 for purchases which closed prior to January 1, 2017 or 50% of $4,000 for purchases which close on or after January 1, 2017). A similar rule pertains to spouses where only one of them is a first-time homebuyer. Incidentally, for these purposes "spouse" is defined under provincial Family Law legislation to include: Either of two persons who,
are married to each other, or
- have together entered into a marriage that is voidable or void and also includes either of two persons who are not married to each other and have
cohabited, continuously for a period of not less than three years, or
in a relationship of some permanence, if they are the natural or adoptive parents of a child.
Are there time limits for applying?
If you are a qualifying first-time homebuyer, you must apply for the LTT refund within 18 months after the date that the conveyance was registered.
|A Note About the Refund of Municipal LLT
As of January 18, 2017, the City of Toronto has not increased the amount of the maximum Municipal Land Transfer Tax refund available to First-Time Homebuyers. Unfortunately, the maximum refund amount remains at $3,725. The City of Toronto's eligibility rules currently remains the same as those for the Provincial Land Transfer Tax refund.
The Basics of Ontario Land Transfer Tax (LTT)
While we are on the topic of Land Transfer Tax (LTT) obligations in Ontario, here's a little refresher:
Who has to pay LTT?
As most of you will know, anytime you buy land or an interest in land in Ontario, you are required to pay Land Transfer Tax (LTT). ## When does LTT have to be paid? ## The tax is payable when your transfer is registered. ## Are there any exemptions? And can payment of the LTT be deferred? ## Some transactions do not attract LTT, namely certain transfers between spouses and other family members in specified situations. The payment of LTT can also be deferred in very narrow circumstances. ## What property attracts the payment of tax? ## "Land" includes buildings, buildings to be constructed, structures, structures to be constructed as part of an arrangement relating to a conveyance of land, and fixtures (such as light fixtures, built-in appliances and cabinetry). ## How is the value of the land calculated? ## The amount of LTT you have to pay will depend on the total amount that you are paying for the property. The following are included in that total:
Extras, for example, upgraded flooring, cupboards, doors, windows, counters, architectural changes, and finished basements.
Upgrades, for example, lot premiums, tree planting, sodding and grading, driveway paving.
Also, the cost of builder-paid installations for gas, hydro, water meters etc. are also included, as are lot levies, development charges, school levies, Ontario New Home Warranty Plan fee, architect's fees, etc. Exclusions from the total include chattels such as fridges, stoves, dishwashers, draperies, furniture and equipment are included in the purchase of the home.
How is the LTT amount calculated?
Effective January 1, 2017, the tax rates for LTT depended on the date of the agreement of purchase and sale and the subsequent registration of the transfer. If an agreement of purchase and sale is entered into after November 14, 2016, and the closing and registration occurs on or after January 1, 2017, then the tax rates on the value of the consideration are as follows:
|Value of Consideration||LTT Rate|
|Up to and including $55,000||0.5%|
|Over $55,000 up to $250,000||1.0%|
|Over $250,000 up to $400,000||1.5%|
|Over $2,000,000 (where the land contains one or two single-family residences)||2.5%|
There were transitional Land Transfer Tax rates that governed all registrations and dispositions of land that occurred prior to January 1, 2017. Tax was calculated on the value of the consideration at the following rates:
|Up to and including $55,000||0.5%|
|Over $55,000 up to $250,000||1.0%|
|Over $250,000 (where the land contains one or two single-family residences)||1.5%|
Note that for transfers with agreements of purchase and sale that were entered into on or before November 14, 2016, the above rates applied regardless of the actual registration date.
MEET THE AUTHOR: MARTIN K.I. RUMACK
Barrister and Solicitor
2 St. Clair Avenue East, Suite 202
Toronto, ON M4T 2T5
(T) 416-961-3441 (x26)