Buying a home for the first time is one of the most exciting purchases that you will make in a lifetime. New homeowners are often overjoyed to have something to call their own and to be able to grow their net worth as the property appreciates in value over time. Buying a house is, however, an expensive proposition by any standard. Agent’s fees can amount to tens of thousands of dollars depending on your purchase price, and then there are legal fees, utilities, moving costs, and other expenses.
Then, of course, there are taxes. The government has a keen interest in taxing the purchase and sale of real estate in Ontario, and this is usually best expressed in the land transfer tax. The land transfer tax in Ontario is an additional tax that equals anywhere from 0.5% to 2.5% of the purchase price of the property, calculated on an incremental scale. For example, the first $55,000 of the price is taxed at 0.5%, the value between $55,000 and $250,000 is taxed at 1%, and so on.
The formula can be complicated, and even though land transfer tax has been in place in Ontario for decades, the final number can still present a sticker shock that many purchasers simply had not accounted for in their budgeting. In some municipalities such as Toronto, there is not only an additional municipal land transfer tax as well, but a land transfer tax administration fee on top of that (for which, of course, the HST on top of that creates a tax on a tax on a tax). The rules can be dizzying for first-time buyers, but there may also be some good news for your bottom line.
The Land Transfer Tax Refund for First-Time Homebuyers
If you are preparing to become a first-time homebuyer, you may have heard that there is a land transfer tax rebate available to you. For first-time buyers today, you may be able to earn up to a $4,000 refund on your land transfer tax, depending on the purchase price of the home. Similar to how land transfer is calculated based on the value of a property, first-time buyers can receive a maximum of $4,000 on the first $368,000 of the value of their property.
While the refund can be helpful when making such a large purchase, the question of eligibility makes things slightly more complicated. A purchaser is only eligible for the refund if they are over 18 years old, a Canadian citizen or permanent resident, and if neither they nor their spouse have owned or have owned an interest in a home anywhere in the world. It is important to note that while there is a restriction on your citizenship and on your residency, the caveat about homeownership is a global one. It also does not matter how you had owned your previous home – even if it was inherited it would still deny you eligibility for the refund.
If you are required to purchase the home along with a parent, which a bank may insist on if you are unable to secure a mortgage on your own, then you would be eligible to claim the refund based upon your interest in the home. If you and your parent(s) each have a 50% interest in the home, then you would be able to claim 50% of the allowable $4,000 refund. In these purchase situations, you as a buyer may be required to pay the land transfer tax at the time of purchase and apply for the refund afterward.
If you are purchasing your home with your spouse and one of you has owned a home previously then the situation is slightly more complicated. In large part, this depends on whether you meet the legal test required for a spouse, which in this case means either married to each other, cohabitating for at least three years or in a relationship ‘of some permanence’ with a child together. If one of you had owned a home or interest in a home prior to your marriage then there may be refund eligibility, but you instantly become ineligible if that ownership had taken place once you are already married. To put it simply, if you were already married and one of you owned or inherited an interest in a home anywhere in the world, that immediately disqualifies you from any rebate.
Purchasers only have 18 months to apply for the refund after their purchase is registered, and the application can be done online through a series of forms. At Pavey Law, we regularly assist first-time homebuyers in the Cambridge, Kitchener, and Waterloo area to make their new home purchase as smooth as possible, and ideally, this includes a helpful tax refund as well. Our real estate lawyers know purchases and sales inside and out and will be happy to answer any legal questions you may have about your agreement of purchase and sale, your mortgage, or any rights and obligations that you have throughout the buying process. Contact us as soon as you are preparing to make your next big purchase.