Mortgage Math: Land Transfer Taxes

Together, with friends at The Loop by Sympatico.ca, we decided that the most commonly misunderstood part of buying a home is the calculations that go along with it. As a result, Mortgage Math was planned and produced for homebuyers at any stage in the buying process.

In 2012, six per cent of first-time buyers in Canada admitted that they didn’t budget for anything other than their down payment – this is a huge mistake. Closing costs can total up to anywhere from 1.5 to 4 per cent of the purchase price of your home, and the largest cost of all is your land transfer tax.

In our sixth Mortgage Math video, Toronto Real Estate Lawyer Shadi Nasseri shows you how to calculate your land transfer tax when purchasing a home in Ontario. Do marginal tax rates make your eyes crossover? Don’t worry. Shadi makes the calculations easy to understand, no matter what the cost of your property is.

Video Transcript:

Many homebuyers forget about the biggest closing cost about purchasing a home, which is land transfer tax. All provinces in Canada levy their own tax, except Alberta and Saskatchewan, which instead charge a much smaller fee. We’ve brought in Toronto Real Estate Lawyer Shadi Nasseri to walk you through the ins and outs of calculating your land transfer tax.

Marginal tax rates for land transfer taxes vary from province-to-province. However, since the method of calculating land transfer taxes is similar across the country, we’re going to focus on an Ontario example.

In Ontario, there are four possible tax rates. They range from point five per cent all the way down to two per cent.

Let’s say you’re purchasing a property in Hamilton for two hundred and seventy-five thousand dollars. Since the value of your home falls into the third margin, between two hundred and fifty thousand and four hundred thousand dollars, we need to do three separate calculations to figure out your land transfer taxes.

The first calculation is on the first fifty-five thousand dollars of your purchase price. We take that number and we multiply it by zero point five per cent and we get a total value of two hundred and seventy-five dollars.

Next, you’ll need to calculate the tax for the second margin, the amount between fifty-five thousand dollars and two hundred and fifty thousand dollars. Since the value of your home at two hundred seventy-five thousand dollars exceeds this margin, we’re going to use the full range. So, we take the two hundred fifty thousand dollars, we subtract fifty-five thousand dollars and we get total value of one hundred ninety-five thousand dollars. We take our one hundred ninety-five thousand dollars and multiply by one per cent, for a total value of one thousand nine hundred and fifty dollars.

Next, let’s calculate the tax for the third margin. Since our purchase price of two hundred and seventy-five thousand dollars falls between two hundred and fifty thousand and four hundred thousand dollars, we don’t need to use the full range. Instead, we take two hundred and seventy-five thousand dollars, subtract two hundred and fifty thousand dollars and get a total of twenty-five thousand dollars. We take our twenty-five thousand dollars and multiply it by the rate of one point five per cent for a total of three hundred and seventy-five dollars.

To determine your total land transfer taxes, we need to add all three figures to get it. So, we take the two hundred and seventy-five dollars, we add to it the one thousand nine hundred and fifty dollars and again add the three hundred and seventy-five dollars for a total amount of two thousand six hundred dollars.

Now, in Ontario, if you’re a first-time homebuyer you may qualify for rebates of up to two thousand dollars. So, in this example, that would bring your land transfer taxes down to just six hundred dollars.