What first-time buyers need to know about your land transfer tax refund

Buying a property is one of the most important purchases you can make in your life. In today’s real estate market, it can also be one of the most daunting. This is especially true for first-time buyers who might not know what to expect. However, there are some advantages to buying your first property, such as the refund on Land Transfer Tax that is only available to individuals who have not previously owned real estate.

While many buyers have heard of the Land Transfer Tax refund, there are a lot of misconceptions about what it is precisely. A common mistake first-time buyers make is thinking they won’t have to pay Land Transfer Tax at all. Unfortunately, Ontario’s Land Transfer Tax refund is capped at $4,000. Toronto, which has its own Municipal Land Transfer Tax that mirrors the Province’s, caps its refund slightly higher at $4,475.

Maximum rebates

According to the Parliamentary Budget Officer’s House Price Assessment released earlier this year, the average price of a home in Canada at the end of 2021 was $811,700; the Province would assess Land Transfer Tax in the amount of $12,709 for property purchased for that amount. Qualified first-time buyers would be entitled to the maximum rebate of $4,000, but would still have to pay the Province $8,709 in Land Transfer Tax. Were this average priced home located in Toronto, the combined provincial and municipal Land Transfer Tax owned by a buyer would be $25,418, with first-time buyers paying $16,943 after both levels of governments’ refunds are applied.

There are also often misunderstandings about who qualifies as a first-time buyer. You may not own property in Ontario or even Canada, but still not qualify if you have owned property elsewhere in the world. You may also be disqualified from the refund if you were otherwise a first-time buyer, but your spouse owned property while you were legally married to him or her. Partners who are not legally married may be able to structure their ownership of a property in such a way as to take advantage of one partner’s eligibility for the rebate, even when the other has owned property before. Buyers should consult with a real estate lawyer before budgeting to receive the refund.

Extra cautious

First-time buyers of new build properties should be extra cautious when assuming they will qualify for the Land Transfer Tax refund. The Land Transfer Tax is payable on final closing when title is transferred. This can be several years after entering into the agreement to purchase the property. A buyer who was eligible for the rebate when they agree to purchase a new build property, may be ineligible by the time they receive title, if in the interim, he or she inherited an interest in a property, or married a homeowner.

There is a lot to consider and perhaps the best advice we can give, as the Boy Scouts say, is to be prepared. There is nothing worse than having all of your ducks in a row and discovering the day before closing that you need an additional $15,000 to $20,000.