In addition to your down payment, you’ll typically also need to pay closing costs whenever you buy real estate. Depending on the province, closing costs can include things like legal fees, appraisal fees (if your lender asks for an appraisal), mortgage default insurance (if your down payment is smaller than 20 per cent) and transfer tax or GST/HST. GST/HST typically applies to new homes, while transfer tax applies when an existing home is sold from one owner to another.
Here’s a look at how transfer taxes work in several provinces across Canada, as well as any first-time homebuyer exemptions available.
Alberta charges a property registration fee and a mortgage registration fee rather than a transfer tax. The fee is $50 plus $1 for each $5,000 or portion thereof of value (portions are rounded up to the nearest $5,000).
Let’s say you were buying a $350,000 home with a 20 per cent down payment ($70,000). You’d need to take out a mortgage for the remaining $280,000. The property registration fee would be $120 ($50 + $70 [for the 70 portions of $5,000 that go into $350,000]), and the mortgage registration fee would be $106 ($50 + $56 [for the 56 portions of $5,000 that go into $280,000]). The total owed would be $226 ($120 + $106).
B.C.’s property transfer tax is one per cent for the first $200,000 of the home’s sale price and two per cent for any portion greater than $200,000. So, if you were buying a $350,000 home, your transfer tax would be $5,000 ($2,000 on the first $200,000 plus $3,000 on the remaining $150,000).
However, B.C. also has a first-time home-buyers transfer tax exemption for Canadian citizens and permanent residents who have never owned an interest in a principal residence anywhere in the world. To qualify, you also must have lived in B.C. for 12 consecutive months immediately before the date you register the property or filed at least two income tax returns as a B.C. resident in the last six years. Properties with a fair market value of $475,000 or less typically qualify for the full transfer tax exemption, while those with a fair market value under $500,000 might qualify for a partial exemption.
Ontario’s land transfer tax is charged at 0.5 per cent on the first $55,000, one per cent on the next $195,000, 1.5 per cent on the next $150,000 and two per cent on amounts in excess of $400,000. For instance, if you were buying a $350,000 property, you’d owe $3,725 in provincial transfer taxes ($275 on the first $55,000 + $1,950 on the next $195,000 + $1,500 on the remaining $100,000).
Ontario also has a first-time home-buyers tax exemption, but the maximum exemption amount is $2,000, so even if you qualify, you’d be still responsible for taxes in excess of $2,000. In the example above, you’d effectively owe $1,725 if you qualified as a first-time buyer after subtracting the $2,000 exemption. (Note that if you’re buying in Toronto, the city also charges a municipal land transfer tax on top of the provincial tax, but Toronto also has a rebate for first-time buyers.)
Quebec charges land transfer taxes at 0.5 per cent on the first $50,000, one per cent on the next $200,000 and 1.5 per cent on amounts in excess of $250,000. (This structure is similar to Ontario except that the first threshold is $50,000, not $55,000, resulting in slightly higher taxes.) If you purchased a $350,000 home, you’d owe $3,750 ($250 for the first $50,000 + $2,000 for the next $200,000 + $1,500 on the remaining $100,000). The transfer tax structure in the city of Montreal is slightly different in that there are also higher tax rates in excess of $500,000 or $1 million.
Understanding how transfer taxes are calculated in your province can help you budget and plan for buying a home, but remember that transfer taxes are a one-time cost each time you buy property and your mortgage and property taxes are ongoing, so it’s important to make that distinction.
Atrina Kouroshnia is an independently licensed mortgage broker in the province of British Columbia. She specializes in helping first-time home buyers invest in their future through the purchase of their first home. For more information visit MortgagesByAtrina.com or email [email protected].