The latest real estate regulations outlined in the Ontario government’s fall economic statement will impact buyers in Toronto’s luxury market. The most significant change concerning all residents is the land-transfer tax. This tax is a significant portion of closing costs. To address home affordability for first-time buyers, the government has doubled the tax rebate to $4000. The Ontario government plans to afford the rebate by raising land transfer taxes on luxury real estate purchases.
Currently, a $2 million residential purchase owes $36,475 in land transfer tax to the provincial government. Legislation changes mean homes in the $2-million-plus market segment will pay 0.5 percent more in land transfer tax. The government claims less than one percent of transactions will be impacted by the change and the additional revenue will cover the loss from the doubled first-time homebuyer rebate.
Toronto levies a land transfer tax for purchases within its city limits of one percent on the first $55,000 and two per cent on the remaining. A $2 million transaction currently owes $35,725 in land transfer tax to the city. No municipal increases have been announced at this time.
Added together, a $2-million luxury property transaction inside the Toronto city limits could owe $72,200 in land transfer tax before the new provincial rate goes into effect on January 1, 2017.
Property transfers for single family residences between $400,000 and $2 million will keep the 2 percent land transfer tax rate.
Land transfer tax is applicable regardless of Canadian residency. Foreign buyers are liable for paying land transfer taxes. The tax generates $2.1 billion in revenue for Ontario each year.
The measure is one of several specifically aimed at making Toronto real estate more affordable for buyers seeking home ownership in a market where the average price of residential real estate is $762,975.
Buyers searching the Toronto real estate market for luxury properties need to be aware of the latest developments in real estate regulation. Consult with Barry Cohen to understand the financial impact of the rate changes when pricing luxury properties.