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Monday, July 25th, 2016

Understanding The Implications Of Land Transfer Taxes Across Canada

Ben Franklin was not known for being a property market pundit, but he might have been able to add that to his credentials when he said. “In this world nothing is certain but death and taxes.”

Land Transfer Tax, or Property Transfer Tax, required in many provinces across this country, is one of the most significant upfront costs that a home purchaser is presented with. In some regions, this cost is becoming prohibitive to the point that it is becoming fodder for political platform and policy initiative.

Ontario, British Colombia, Manitoba, Nova Scotia and Quebec all have taxes based on the purchase price, or fair market value of a property. Given the surge of prices in various centres in these provinces, (TREB reported the average price for the first two weeks of July was $464,277), this tax represents a major expense.

The impact of these significant costs are far reaching. The benefits of home ownership-both economically (because of spin off spending from home sales) and socially (because of strong social foundation and civic pride associated with home ownership), extend to the community and the local economy. Homeownership is not, therefore, just about the homeowner.

Why is LTT such a big deal?

The Land Transfer Tax is so impacting because the amount to pay can be significant. Not only that , given the current economy, rising costs of consumer goods, impending rise in interest rates as well as rising property prices in some regions,  levying an additional charge poses the possibility of pushing potential purchasers to the edges of affordability. For some, it may mean the difference between being able to purchase a home comfortably- or not purchasing one at all.

For Robert J. Morrow, Editor: www.HamiltonHomeReview.com,Sales Rep, Chase Realty Inc, Brokerage, the LTT is actually a selling feature with the First Time Homebuyer segment in his Hamilton area market. “With first time buyers it is a blessing because they get up to $2000 of it back. With most first homes being priced under $300K that means they usually get it all back. One lawyer in Hamilton is now getting them exempt, meaning they never pay in the first place. So for me LTT is a selling feature.”

However its not all positive news. Not only are some potential buyers being pushed to the sidelines of homeownership, those that are looking to make a change in their property ownership- and move up or down, are becoming increasingly encouraged to stay put.

John Filice, Mortgage Broker, Invis, says the impact on the market as a whole is far-reaching, and digs deep into the pockets of many as they move through their various stages of life, “Land Transfer Tax affects mobility. If somebody downsizes- they have to pay a fee. If someone has a baby, and needs more room- they have to pay a fee. This affects the number of transactions that go on.”

Rebates

There is respite for those who qualify- and who are able to jump through the appropriate hoops.  There are refunds, rebates, exemptions and partial exemptions- with a myriad of specific conditions and exceptions, based on physicality of the property, property price and on situation surrounding the homeowner themselves , and these vary from province to province.

Be warned too-there are specific requirements, and it behoves a home purchaser , not to just be aware of Land Transfer Taxes and to budget for them accordingly- but to be well acquainted with the definition of home ownership and language associated within- especially as the government sees it. For instance, in Ontario, if you inherited a home previously, instead of purchasing a home- you were still a homeowner- and would not qualify as a first timer.

Equal is not the same

Filice believes that rebate programs are a step in the right direction, but that they fall short of actually delivering the help that many really need to make home ownership a reality. “They are great, but only a small segment is helped, really.”

The solution, he believes, is that the criteria for rebates needs to be wider, and also needs to be more reflective of the specific pricing and unique conditions that exist region to region. “A rebate is not going to help a homeowner in Toronto, the same way it would help a homeowner in somewhere smaller- like Owen Sound, for example.  The rebates need to be regionally tied to average prices.”

Toronto- Two Hit Wonder

In Toronto, homebuyers are faced with two land transfer taxes- which add up to significant values because of the high property prices in the region.

Toronto is a bit of an anomaly on a national scale, but it is a good example of what can happen when the long arm of the tax collector dips their hand so deeply into the housing market.

There has been real, material impact- not just for homeowners in Toronto, but for those whose business it is to buy and sell these homes.

As such, the Toronto Real Estate Board has been very vocal in its opposition to this double tax- because of, among other things, the restraint that it puts on the market.  The housing markets, like many components of this economy do not operate singularly- rather they are part of an economic mesh that supports several industries.

According to a study by the Canadian Real Estate Association, upwards of $30,000 is spent in economic spin off spending associated with resale of housing.  Placing deterrent pressure on a transactional business- like Real Estate can only have a far-reaching impact into all areas of a local economy.

Von Palmer, Director, Government Relations & Chief Privacy Officer Toronto Real Estate Board, says that fundamentally, this tax is unfair. “This is a tax imposed on a small subset of the population, which is unfair….Toronto is the only place in the country where this tax exists.”

Torontonians too, are pushing forward with a desire to hold Rob Ford accountable for campaign promises made to repeal the tax. Despite a projected budgetary shortfall, Torontonians are telling their municipal government that their revenues will have to come from elsewhere.  A recent public opinion poll conducted by Ipsos Public Affairs found that 75% of Torontonians support Toronto Mayor Rob Ford’s commitment to repeal the Toronto Land Transfer Tax. And as Palmer points out, this is an issue on which the public is focused.   When made aware of this budgetary shortfall, 68% of respondents remained steadfast in believing unequivocally that the tax needs to be repealed, as promised.

A Rose by any Other Name

Upfront costs affect homebuyers across the country, regardless of where they live, or what they are called. Although not all provinces have Land Transfer Tax, there are still taxes for many associated with the purchase of a home- and still accumulate to additional costs. Leslie Penney, Vice President – Business Development, APlus Mortgage Group/Mortgage Alliance, says that regardless of what these costs are called- they are still money up front- and while the actual amounts may be proportionately less, there is less chance for first timers to get money back than in some other provinces:

“(In NFLD,) we do have a registration process which is essentially the same as the tax, in which any mortgage being registered with the Government is charged based on the value of the property/mortgage amount. This is charged on every mortgage and there aren’t any rebates or tax incentives for first-time home buyers, with the only tax credit being the Home Buyers Tax Credit for first-timers, which is a Federal Tax rebate.”

The key here too, is partly attributed to optics: “I don’t think it affects people’s willingness to buy a home, but many are taken aback when it is explained to them that it is suggested they have an estimated 1.5% of the purchase price in closing costs. And since the ‘tax’ or ‘fee’ is paid in a lump sum with all the legal fees and so on, it just kind of blends in there with the rest and clients assume it’s the lawyer who’s making all the money, when in reality a large chunk of it is going right to the government.”

Real Estate as Political Platform

The Ontario Real Estate Association realizes that home ownership is a dream for many- but affordability is often a barrier to making this dream a reality.

They recently conducted an Ipsos Reid poll that stated that “Over half (54%) of renters cited affordability as a key reason for not owning a home and 70% surveyed indicated they would be more willing to consider owning if the government offered more tax breaks and incentives to offset costs for first time buyers.” Also, a staggering 93% of home owners want taxes on buying a home lowered.

As such, and recognizing the impact that home ownership has on communities, local economies and on the real estate and mortgage industries themselves, OREA is proposing that  all political parties include tax incentives and rebates for homeowners as part of their upcoming provincial election campaign.

“Support for home ownership means support for strong communities and a better Ontario,” said Barb Sukkau, President of OREA. “We are urging all political parties in the 2011 provincial election to commit to making home ownership more affordable for Ontarians.”

Among other policy initiatives, OREA is proposing “an improved Land Transfer Tax (LTT) Rebate for first-time home buyers. OREA estimates that an improved LTT rebate would save a first-time buyer of an average resale home almost $1,500.”

Homeownership seemingly, is fundamental part- not just as a means of revenue collection- but as social fabric. It is the homeowner that turns the key to the front door- but everyone really, has a vested interest in homeownership and access to it.


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