The truth about property transfer tax

Property transfer tax is an important cost that one must prepare for when buying real estate. Whether it is a first-time homebuyer or a client acquiring a second property, this tax affects the total cost of the purchase. It can also have implications for financial planning. Financial advisors who understand how property transfer tax works can offer better advice and help clients avoid surprises. 

In this article, Wealth Professional Canada will explain what property transfer tax is, who pays for it, and why it matters. We’ll also cover how to calculate property transfer tax in Ontario and British Columbia as well as other valuable insights. Want to learn how you can leverage property transfer tax knowledge in financial discussions? Keep reading below. 

What is property transfer tax? 

Property transfer tax is a government tax charged when ownership of real estate changes hands. It is based on the fair market value of the property at the time of registration. 

The tax applies when title is transferred at the land title office, whether the transfer involves a home, commercial property, or bare land. The property transfer tax is separate from annual property taxes. It is a one-time payment made at the time of purchase. 

It also applies to most property purchases, though there are exemptions and rebates in some cases. 

Who pays property transfer tax in Canada? 

It is the homebuyer who is responsible for paying the property transfer tax when purchasing real estate. This tax is paid at the time of closing and is a requirement in most provinces and territories. It applies to residential and commercial properties and is based on the property's value. 

Property transfer tax rules and rates vary by province. As such, it's vital for legal and financial professionals to check local regulations. For instance, in British Columbia, the property transfer tax is based on the day it was registered with the Land Title Office. 

In Québec, the welcome tax depends on the higher value between the municipal assessment and the purchase price. Watch this video to learn more about Québec’s welcome tax: 

When does property transfer tax apply? 

Property transfer tax usually applies when there is a change in legal ownership. This includes: 

• buying a home from another person or developer 
• gifting a property to a family member 
• transferring property into a trust 
• moving property from one person to a corporation 

Even if no money changes hands, property transfer tax might still apply if the title is transferred. Remember, the tax is based on the fair market value at the time of transfer, not on the price paid. 

Why property transfer tax matters 

For those who are planning to buy a home or investment property, property transfer tax adds to the total down payment cost. It can affect how much your clients can afford to spend on a property or how much mortgage they need to cover taxes and other costs. 

Financial advisors should include property transfer tax in conversations about affordability, upfront payments, and cash flow. It can also influence timing, especially when a client is planning to buy and sell in a short period. 

Understanding property transfer tax rules helps financial advisors explain costs clearly. This is especially true when advising first-time homebuyers or those who are moving between provinces or buying jointly with others. 

How to calculate property transfer tax in Ontario 

In Ontario, land transfer tax is paid when land is transferred or when there is a change in the beneficial ownership of land, unless an exemption applies. The tax applies whether or not the transaction is registered with the Land Registry Office. 

Land, as defined by Ontario law, includes: 

• lands 
• buildings 
• fixtures 
• structures 
• structures to be constructed 
• any interest in these buildings 

Land transfer tax is calculated based on the value of the consideration. This includes: 

• purchase price 
• liabilities assumed 
• benefits conferred 
• soft costs 
• cost of upgrades 

In some cases, such as a 50-year lease or certain corporate transactions, the tax is calculated based on the fair market value instead. 

Watch this clip to better understand how land transfer tax works in Ontario: 

 
Vacant lot with a construction contract 

If a homebuyer purchases a vacant lot and signs a construction contract as part of the deal, the tax is calculated on both the lot price and the full construction cost. 

Value of consideration in foreign currency 

If the purchase price is in foreign currency, it must be converted to Canadian dollars. The date of conversion is either the date the agreement becomes binding or the date of registration if no contract exists. 

Tax rates in Ontario 

Ontario's current tax rates are as follows: 

• 0.5 percent for amounts up to and including $55,000 
• 1.0 percent for amounts exceeding $55,000 and up to and including $250,000 
• 1.5 percent for amounts exceeding $250,000 and up to and including $400,000 
• 2.0 percent for amounts exceeding $400,000 
• 2.5 percent for amounts exceeding $2,000,000 where the land contains one or two single family residences 

Different rules apply to older agreements signed before November 14, 2016. 

For refunds 

Here’s a list of documents required in Ontario for refunds: 

• Authorizing or Cancelling a Representative forms, completed by each transferee 

• copy of the Registered Instrument 

• copy of the docket summary showing the amount of land transfer tax paid 

• copy of the Agreement of Purchase and Sale, with all schedules attached 

• copy of the Statement of Adjustments 

• if the value of the consideration is based on the fair market value of the land – any appraisals or documentation that is evidence of the fair market value of the land 

• a cover letter setting out the reason for the refund, and to whom the refund cheque should be made payable 

To pre-pay land transfer tax 

To pre-pay land transfer tax in Ontario, here are the documents that clients must submit: 

• Authorizing or Cancelling a Representative forms, completed by each transferee 

• copy of the Document in preparation 

• cheque for land transfer tax and the NRST, if applicable (certified, if not drawn on the solicitor's trust account) 

• copy of the Agreement of Purchase and Sale, with all schedules attached 

• copy of the draft Statement of Adjustments 

• if the value of the consideration is based on the fair market value of the land – any appraisals or documentation that is evidence of the fair market value of the land 

• a cover letter requesting the prepayment of land transfer tax 

How to calculate property transfer tax in British Columbia 

In British Columbia, the property transfer tax is based on the fair market value of the land and buildings on the day of registration. Fair market value means the price a willing homebuyer would pay to a willing seller in an open market. 

The general property transfer tax is calculated as follows: 

• one percent of the fair market value up to and including $200,000 
• two percent of the fair market value greater than $200,000 and up to and including $2,000,000 
• three percent of the fair market value greater than $2,000,000 

If the residential portion of the property is worth more than $3,000,000, a further two percent is charged on the amount above that threshold. 

If the property includes both residential and commercial space, the additional two percent applies only to the residential portion. For farmland with a home, up to 0.5 hectares is treated as residential. 

Other property transfer tax rules in BC 

Foreign buyers, corporations, or trustees must also pay an additional property transfer tax on the residential portion if the property is in a specified region of British Columbia. 

When a property is not sold in an open market, fair market value can be determined by a recent appraisal or BC Assessment values. These assessments reflect market conditions as of July 1 of the previous year. 

However, they might not be reliable if the property has changed or if the local market has shifted. In complex cases, the tax applies to the total value of multiple parcels if they are transferred together. 

Watch this video to know more about property transfer tax in BC: 

Property transfer tax in financial discussions 

Homebuyers often focus on the purchase price, down payment, and mortgage, but overlook taxes and fees. As such, you can provide your clients with improved service by factoring property transfer tax when making personalized financial plans. 

To help your clients, you must: 

• ask about upcoming property purchases early in the planning process 
• include property transfer tax in cash flow projections 
• review available exemptions and eligibility criteria 
• coordinate with real estate lawyers or notaries to confirm final amounts 
• consider the impact on emergency funds or investment withdrawals 

As their financial advisor, you can guide your clients to avoid these issues by asking the right questions and helping them stay organized in their finances. 

Why property transfer tax is essential to financial planning 

Property transfer tax is a critical component to account for in real estate transactions. Although the rules vary by province, the core principles are similar. If overlooked, it could result in short-term financial strain and lead to unexpected expenses. 

But once you fully understand how it works and what exemptions might apply, you can guide your clients and provide them with sound advice. This is especially true when they are coordinating a home purchase with retirement planning or investment growth. Overall, incorporating knowledge about property transfer tax into your services can enhance your credibility and value as a wealth professional. 

Want to read about property transfer taxes and more? Check out our Industry News page.