If you have been holding back from buying your first home in Ontario because you feel you won’t be able to afford closing costs, you now can definitely enter the exiting world of homeownership.
In a major relief to this growing segment of buyers in Ontario’s housing markets, first timers will not have to pay any land transfer tax on the first $368,000 of their home’s purchase price. It means that more than half of homebuyers won’t have to pay any LTT because starter homes fall within this price bracket in the majority of housing markets in Ontario.
The Ontario government announced last year that they would double the first-time homebuyers’ maximum Land Transfer Tax refund to $4,000. The measure came into effect January 1. The amount of refund was $2,000 earlier.
In Toronto, the land transfer tax rebate was $3725, but the council has announced that it would be increased to $4,475 on a recommendation from the City of Toronto’s Budget Committee. The increase will be in effect from March 1.
What is land transfer tax?
You pay land transfer tax when you buy land or an interest in land in Ontario. For a home worth up to $55,000, you will pay the tax at the rate of 0.5 percent of the purchase price. For home worth up to $250,000, it is 1 percent, while for homes worth up to $400,000, the LTT is 1.5 percent. This is 2 percent for homes worth up to $2-million and 2.5 percent for home priced above $2-million.
You should meet the following criteria to be eligible for the refund:
- You must be 18 or older,
- You must occupy the home as their principle residence within nine months of the date of transfer.
- You shouldn’t have owned a home, anywhere in the world, at any time.
- Your spouse cannot have owned a home anywhere in the world, after the marriage. If this is the case, no refund is available to either spouse. However, she can be a previous homeowner.
- You shouldn’t have previously received an Ontario Home Ownership Savings Plan (OHOSP) based refund of land transfer tax.
- You must apply for the refund within 18 months of purchase. You should claim an immediate refund when registering the land transfer and paying the tax. If the rebate is not claimed at the time of registration, the full tax is paid and a refund claim can be made to the Ministry of Finance within 18 months.
An exciting time for first time home buyers?
The government is trying to make homeownership affordable for first time homebuyers as middle class families have been priced out of the market. Home prices are soaring, particularly in Toronto.
If you are planning to enter the market at this time, you should feel confident, thanks to government benefits which are not limited to LTT. You can take advantage of various rebates including tax credit (HBTC) through the Government of Canada’s Economic Action plan. You can also use your RRSP contribution towards a down payment, using the Home Buyer’s Plan (HBP).