At the time of closing of a purchase transaction or acquire a beneficial interest in land, the buyer needs to pay land transfer tax to the province of Ontario.
Unless exempt under the Act, the Land Transfer tax is payable on all unregistered dispositions of beneficial interests in land including every conveyance of land presented for registration.
Tax rates for land transfer tax are dependent upon the date of agreement of purchase and sale. If the registration or disposition of property occurs later than January 1, 2017, the tax rates on the value of the consideration are outlined below:
- 0.5% for all amounts up to and including $55000
- 1.0% for all amounts more than $55,000 and up to and including $250,000
- 1.5% for all amounts more than $250,000 and up to and including $400,000
- 2.0% for all amounts exceeding $400,000
- 2.5% for all amounts exceeding $2,000,000 where one or two single family residences are contained in the land
What Are the Land Transfer Tax Refund Rules for First‑Time Homebuyers?
The Land transfer tax is applicable for land conveyances in Ontario. First‑time homebuyers may be eligible for full or part refunds of the tax payable. The refund is applicable for
- All sale and purchase agreements for newly constructed homes, signed before December 14, 2007
- All purchase and sale agreements signed after December 13, 2007, for all homes including resale and newly constructed
Who Can Claim Land Transfer Tax Refund Under the First Time Homebuyer Clause?
Applicants who claim refunds need to be at least 18 years and should not have owned an interest in a home or a home in any country in the world. If their spouse is not a first time buyer and has not owned a house during their relationship, then the applicant claim 100% rebate even though they may be buying jointly.
Any applicant who has previously owned a home cannot qualify for a refund under this refund clause. The fact that the house was acquired from an inheritance, gift or purchase has no bearing on the application.
How to Claim A Land Transfer Tax Refund Under the First Time Homebuyer Clause?
Refunds application can be made at the time of registration as below:
- For electronic registrations, all forms under the Explanation tab of the electronic land transfer tax affidavit need to be completed; or
- For paper registration, Ontario Land Transfer Tax Refund Affidavit for First‑Time Purchasers of Eligible Homes form needs to be filed at the Land Registry Office
The possible land transfer tax refund amounts are outlined below:
- Maximum of $2,000 in the event of all dispositions and registrations which occurred before January 1, 2017;
- Maximum of $4,000 in the event of all dispositions and registrations occurring after January 1, 2017
Claiming refunds at the time of registration, seeks to offset the tax amount payable. In the event, where the refund is not claimed at registration, the applicant will need to pay the tax and apply for a refund to the Ministry of Finance. The amount of overpaid refund does not qualify for any interest.
First-time home buyers also have an additional benefit in reduced income taxes. At the time of their income tax filing, they can get a relief of up to $750.
Are Land Transfer Tax Refunds Allowed If No Transfer Has Occurred?
Refunds are available in the circumstances where Non-Resident Speculation Tax or Land Transfer Tax has been paid on notice of an agreement of sale and purchase where the transfer did not take place. Also, the rebate will be applicable if the transfer was not assigned or is at an end.
Deletion of caution or notice from the title is not proof of the interest not assigned, or agreement is at an end. The purchaser will need to confirm:
- No specific performance has been or will be launched
- No amendments to the agreement will be made after vendor negotiations
- Purchaser’s interest has not been assigned
When Is the Land Transfer Tax Refund Tax Considered to Be Overpaid?
The Land Transfer Tax that has been paid erroneously is to be returned to the individual or the business which made the excess payment. If the amount of tax paid is more than the actual tax payable by them, the excess needs to be returned as per the taxing statute or regulation.
The excess or the entire amount of tax paid may be refunded by The Minister of Finance in certain cases as outlined below:
- Tax paid is in excess of the tax payable (refund);
- The first‑time homebuyer refund is applicable for an applicant;
- No transfer has occurred (refund); or
- Rebate of Non-Resident Speculation Tax is applicable for the applicant
Tax may be overpaid in many circumstances as outlined below:
- Incorrect calculation of tax paid at the time of electronic registration;
- Incorrect tax rate applied to the consideration value;
- A taxpayer pays the tax twice on the same conveyance;
- Amount of the consideration has been reduced;
- Tax has been paid where it was not payable at all
How Can I Apply for A Land Transfer Tax Refund?
Written requests with the reasons outlined need to the submitted for claiming refunds of Land Transfer Tax. No standard form of claim is present.
For refund and rebates of Non-Resident Speculation Tax, you will need to provide the completed copy of statement 1 along with the Ontario Land Transfer Tax Refund/Rebate – Affidavit Additional Tax on foreign entities and taxable trustees (Non-Resident Speculation Tax).
Additional documentation must be submitted to support the reasons for refund stated in the application.
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As on December 13, 2007, the government of Ontario presented a mini budget that stated that tax refund (maximum $4,000) will be granted to resale home purchasers just like first time buyers of new homes, however the offer should be accepted on or after December 14, 2007.
Case 1: When first time Buyer Purchases from a Builder
Conditions for First Time Buyer of New Homes
- To be eligible for tax refund, you must be a first-time home buyer and the unit purchased must be a newly constructed home or condominium. The said property must be registered with the Ontario New Home Warranty Program (ONHWP). If the condo has been constructed from an old building or renovated, it is not eligible for the program. Also, the property in question must be the principal residence of the purchaser.
- It is important that you or your spouse must have attained at least 18 years of age. In the past, you both should not have owned a home (applicable throughout the world) and paid any mortgage for a property. A spouse is defined here as a lawful spouse of more than 3 years or where the couple has an adopted or natural child. If one of the spouses was a homeowner but sold the house before marriage he or she is no longer eligible for claiming a refund. However, the other spouse may claim the entire refund amount even if both have joint ownership of property.
Case 1: When first time Buyer Purchases from a Builder
Non-Spousal Partnership Purchase
If two members of a family purchase a property (example father and son) and one of these partners is first time home buyer and owns a 50% share in the property, that first time home buyer partner can claim a 50% refund under the Ontario Land Transfer Tax refund. Usually, this means about half of $2,000.00.
The maximum refund that can be claimed is up to $2,000.00.
a) As soon as the deal on the real estate purchase is closed, the refund can be claimed instantly. The Ontario Land Transfer Tax amount above the permissible maximum refund amount is required to be paid on closing.
b) If an eligible purchaser does not claim the immediate refund at the time of deal closing, it is required that the obligatory tax payable at that time plus a refund claim must be made to the Ministry of Finance directly. In such a case, the application must be made within 18 months of the property registration. Also, no interest can be claimed on the refund claim amount. You have to submit the following documents if you wish to process the refund claim. Keep these documents handy in case the purchaser’s lawyer is not claiming the refund:
- A duly completed Ontario Land Transfer Tax Refund Affidavit form
- Copy of the registered transfer/deed
- Copy of the agreement of purchase and sale
- Copy of the Statement of Adjustments at time of deal closing
- Copy of the New Home Warranty Certificate
Case 2: When a First Time Buyer Purchases a Resale Home
If the agreement of Purchase is signed on or after December 14, 2007, and and the buyer is a first time home purchaser buying a resale home, then under the Ontario Land Transfer Tax, the buyer is eligible to receive a rebate of $2,000.00.
The Land Transfer Tax Act is due for an overhaul. But until then, the following procedure is to be followed by first time buyers of resale homes to claim refund:
1) First time buyers of a resale home have to pay land transfer tax at the time of closing of the deal.
2) After the closing, the buyer has to submit the Land Transfer Tax refund affidavit along with a copy of the Transfer Deed and Agreement of Purchase and Sale. This document can be prepared by the lawyer of first time buyer of the resale property. The client can simply sign it and the lawyer can submit this form.
3) The application for tax refund must be submitted soon after the deal is closed.
4) Remember, there will not be any tax refund until the proposed bill becomes a law.
Eligibility Requirements for new homes is similar to resale homes as well. These are:
- Purchaser must have attained at least 18 years of age.
- The property must be used as principal residence within 9 months of deal closing
- After the couple have entered matrimony, no spouse should have owned any property in the world.
Once the proposed bill becomes a law, the purchaser can immediately claim a refund using electronic affidavit up to a maximum of $2,000.00.