City of Toronto Institutes New Municipal Land Transfer Tax

On October 23, 2007, the Toronto City Council approved a new municipal land transfer tax pursuant to the statutory authority granted under the City of Toronto Act, 2006 (Ontario). The new Act granted broad new powers of taxation to the municipality. The new tax will be in addition to the Land Transfer Tax currently collected by the Province of Ontario for real estate transactions throughout the province. The new Toronto tax will be payable by purchasers on all transactions registered after February 1, 2008, the new tax applies to all classes of properties (residential, commercial, industrial, etc…). Coupled with the City of Toronto’s decision to raise property taxes by 3.75% (as announced in the proposed 2008 budget), purchasers, owners and developers in the Greater Toronto Area are in for a shock in 2008.

Rates

The new Land Transfer Tax will be charged on a graduated basis depending on the consideration of the transaction. The rates vary depending on whether the property is classed residential or commercial. For both types of properties, tax is payable at 0.5% on transactions up to $55,000. Tax is payable for all transactions at 1.0% for transactions between $55,001 and $400,000. For residential properties, tax is payable at 2.0% for all values over $400,000. For commercial properties, the rate payable is 1.5% for all transactions between $400,000 and $40,000,000. The rate decreases to 1.0% for all commercial transactions over $40,000,000.

Exemption

There are some instances where a tax rebate will be issued. For all agreements of purchase and sale entered into prior to December 31, 2007, the purchaser will be entitled to a full rebate. For first-time home buyers, a rebate (to a maximum of $3,725) will apply for purchasers of both new and existing homes. Also, there are certain classes of purchasers (i.e. crown agencies, school boards, hospitals, etc…) which are exempt from paying the new City of Toronto Land Transfer Tax. All conveyances which are exempt from the provincial Land Transfer Tax are also exempt from the new tax.

Lessons for the City of Ottawa?

Experts are debating the effect that the new land transfer tax will have on the economy and in particular, the building and housing industries in the GTA. There is the potential for slowdown in the development of new condominium and housing projects. Construction professionals may lose their jobs. Purchasers who are financially stretched now have another closing cost to factor into their calculation when considering a move into the Toronto real estate market. The total impact will have to be gauged over time.

A bigger concern in Ottawa is whether the Toronto experiment will make its way north. With the recent news that Ottawa is facing a $118 million budget deficit for 2008, municipalities are always looking for new ways to raise revenue. Would Larry O’Brien risk the political fallout by following Toronto’s lead? The potential backlash from voters would probably be too severe.

Steven Sheppard is an associate with BrazeauSeller LLP. Steven's practice focuses mainly on real estate and civil/commercial litigation.

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City of Toronto Institutes New Municipal Land Transfer Tax

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