Ontario Land Transfer Tax Refunds For First-Time Home Buyers

Are you a first-time home buyer? Do you know you can save up to $2,000 on land transfer tax in Ontario. It occurred to me that not every first-time homebuyer considers land transfer tax when they are budgeting for their purchase or applying for their mortgage and as far as closing costs go, this is a big one to overlook, particularly if the purchaser does not qualify for any rebates.  The purpose of this article is to shed some light on how land transfer tax is calculated and the criteria for rebates that are currently available for first-time homebuyers.

How to Calculate Land Transfer Tax

In Ontario, the provincial government collects land transfer tax on the disposition of land or a beneficial interest in land pursuant to the Land Transfer Tax Act (Ontario).  On February 1, 2008, the City of Toronto instituted its own land transfer tax which mirrors, and is paid in addition to, the Ontario land transfer tax. There are various transfers that are exempt from both taxes, such as a transfer between spouses pursuant to a written separation agreement or a transfer between a trustee and beneficial owner of land.  For the purposes of this article, I will focus on land transfer tax that is payable upon the sale of residential real estate in the City of Toronto, assuming that no exemptions apply.

Ontario and Toronto land transfer taxes are payable on the consideration that passes from the transferee to the transferor of property and the amount, if any, of a mortgage or debt being assumed by the transferee as part of the transfer.  The current formulas for determining land transfer taxes are as follows:

Ontario land transfer tax:

• 0.5% – on the first $55,000
• 1.0% – on portion between $55,000 – $250,0001.
• 5% – on balance over $250,000
• 2.0% – on anything over $400,000

Toronto land transfer tax:

• 0.5% – on the first $55,000
• 1.0% – on portion between $55,000 – $400,000
• 2.0% – on anything over $400,000

Land Transfer Tax Rebates for First-Time Homebuyers

For first-time homebuyers, the Ontario government offers a land transfer tax rebate of up to $2,000.00 and the City of Toronto offers a land transfer tax rebate of up to $3,725.00.  To qualify for these rebates, the homebuyer must meet the following criteria:

1. they must be at least 18 years of age;
2. they must occupy the home as their principal residence within 9 months of the date of transfer;
3. they cannot have owned a home, or an interest in a home, anywhere in the world at any time;
4. if they have a spouse, their spouse cannot have owned a home, or an interest in a home, anywhere in the world while being their spouse;
5. in the case of a newly constructed home, they must be entitled to a Tarion New Home Warranty; and
6. they cannot have previously received an Ontario Home Ownership Savings Plan-based refund of land transfer tax.

If there is more than one homebuyer and only one of them is a first-time homebuyer, that first-time homebuyer will only be able to claim a fraction of the rebates equal to their interest in the property (so if they only acquire a 50% interest in the property, they will only be able to claim 50% of the rebates).  As well, if a first-time homebuyer has a spouse who owned a home or an interest in a home anywhere in the world while being their spouse, neither one of them will qualify for the rebates; if, however, the first-time homebuyer’s spouse sold his or her home or interest in a home prior to becoming their spouse, then the first-time homebuyer can claim their 50% share of the rebates and their spouse’s 50% share of the rebates (for a total of 100% of the rebates) even though the spouse is not, by definition, a first-time homebuyer.

Confused yet?  Here’s an example to help clarify how the rebates work:
Consider a couple, Jack and Jill, who are not spouses but are purchasing a home together for $400,000.  Jill is a first-time homebuyer and Jack is not.  The land transfer tax that would be payable by Jack and Jill is as follows:

• Provincial land transfer tax:  $4,475.00
• Municipal land transfer tax:  $3,725.00
• Total land transfer tax:  $8,200.00

Assuming that all of the criteria for the rebates are met and Jack and Jill are each acquiring a 50% interest in the home, Jill can claim up to 50% of the rebates for a total savings of $2,862.50 (50% of $2,000 and 50% of $3,725).   If Jill acquired a 75% interest in the home, she would get a corresponding increase in the amount of rebates she could claim – in that case, Jill could claim up to 75% of the rebates for a total savings of $4,293.73 (75% of $2,000 and 75% of $3725).

If Jack and Jill were spouses of one another, the outcome would depend on whether Jack sold his home before becoming Jill’s spouse.  If Jack did not sell his home before becoming Jill’s spouse, then neither one of them would qualify for the rebates; if, however, Jack sold his home prior to becoming Jill’s spouse, then Jill could claim her 50% share of the rebates and Jack’s 50% of the rebates (for a total of 100% of the rebates).

At the end of the day, it is important to consider land transfer tax and available rebates when budgeting for your first home purchase.

Source: Baker Lawyers,Ontario LTTR

10 Mortgage Mistakes First Time Home Buyers Can Avoid

You’re excited! You’ve decided to dip your toe into the rushing river that is Canadian real estate and buy your first home. But the roaring sound of that river can be overwhelming. Where to start? Your mortgage financing is one of the most critical aspects of your first purchase. And you want to get it right.

With so many choices, brands and products you might prefer to take an ostrich like approach and bury your head in the sand to avoid the racket. While you don’t need to understand all of the finer details of mortgage financing you should be mindful to avoid some common mistakes that I’ve observed over the years. Below are 10 mortgage mistakes to avoid for first time home buyers.

1. Not Checking Your Credit  Your credit score is very revealing and allows the lender to get a clear picture of your credit risk.  The first thing you should do when considering a mortgage before even talking to a mortgage professional or lender is have a look at your credit report. This way you can make sure that you have time to make any necessary improvements before applying to lenders. You can check your score on the Equifax website.

2. Applying for New Credit At The Same Time As Your Mortgage Part of the algorithm that calculates your credit score looks at how recently you’ve requested credit. Seeking credit through a car loan or credit card while you’re applying for a mortgage can negatively effect your score. If possible it is best to avoid applying for credit. By the same token, it is best to avoid large purchases like automobiles because the large monthly payments will effect the total mortgage amount you qualify for.

3. Failing to Look at the Total Housing Payment I often sit down with first time home buyers who think that buying a house costs less than renting because the mortgage payment is less than their rent. What they fail to realize is that there is a lot more to home ownership than mortgage payments. We use the acronym PITH in the mortgage industry to account for all aspects of your monthly payment (Principal + Interest+ Taxes+ Heat). You also need to account for your insurance costs and/or condo fees.

4. Skipping The Pre-Approval Before shopping for a home, make sure you can actually qualify for financing by getting a pre-approval. A pre-approval means that a mortgage lender has had a look at your credit and considered your income to determine how much mortgage you can realistically afford and in turn how much house you can buy. 

5. Failing To Prepare Your Assets Believe it or not one of the most challenging parts of the mortgage approval is showing your liquid assets to the lender for the down payment. Lenders are required by the Anti Money Laundering and Terrorism Act to request a 90 days look back of all your accounts to see the source of your down payment. It is not enough to just show a deposit in your account 7 days before closing. Gifts are allowed under particular circumstances.

6. Job Hopping Lenders are looking for income stability and consistency. If you have been a busy bee jumping from one employer to the other the lender may decide not to approve your mortgage. If you are changing jobs within your industry there is leniency depending on the overall strength of your application but if you are making any major changes it might be best to wait until after your purchase or hold off buying for a few months at least until your probationary period has expired. 

7. Not Shopping Around The mortgage market is dynamic. At any given time different lenders could be offering great interest rate specials or products that suit your needs. Mortgage professionals work directly with the lender, and know the best rates and deals. They are like your personal shoppers. The best part is you don’t pay for their services.

8. Chasing Exotic Mortgage Programs When it comes to mortgage lenders if a deal sounds too good to be true then it probably is. In a market where most borrowers are fixated on rate it is easy for lenders to structure mortgages in such a way that the rate looks good but they eliminate all other privileges or worse can’t be broken without paying all of the interest due over the term of the mortgage.

9. Forgetting to Lock Your Rate You may feel that you don’t need a pre-approval because you have strong credit and plenty of income and down payment. The pre-approval also serves an equally important function other than giving you a figure to work with. The pre-approval works as a ratehold to lock in an interest rate for 120 days. If rates increase while you are searching for a home you have the benefit of a protected rate.

10. Not Reading Your Mortgage Documents When you finally make an offer to purchase a home the lender converts the pre-approval into a commitment letter where they spell out the specifics of the mortgage. This is an important document to review and read as it contains all of the terms and conditions of the mortgage including your obligations, costs and privileges. I always read it together with my clients to translate it into normal English. Make sure you understand it and ask questions.

Source: Son of a broker

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