REAL ESTATE - TAX AND HST CONSIDERATIONS WHEN BUYING A NEW HOME

Buying and/or selling a home can be exciting and scary at the same time. Some feel nervous or anxious during the process, while others may feel more motivated or eager. No matter what category you fall in, there are certain steps and tips you can follow to make the entire transaction as safe, smooth, and profitable as possible.  

A house or condominium is usually the most expensive purchase you will have to make in your life. It’s also usually the most valuable investment you’ll make! There are many important areas of a residential real estate transaction to discuss so I've endeavoured to create a series of blogs on Real Estate topics.

This blog will deal with everyone’s favourite topic – ‘Tax Issues’, such as municipal and property taxes  and the Land Transfer Tax  – while future blogs will include ‘Mortgage Issues’, ‘What to Ask and Expect from Your Lawyer’, ‘Title Insurance’, and ‘the Purchase & Sale Agreement’.

Before deciding what house to buy, you have to first decide where you’re going to live. As an example, I've decided to look at the west side of the GTA, including Brampton, Mississauga, Oakville, Milton, and Toronto. You may prefer to buy a new home, or you may wish to buy a home in an established neighbourhood. Whatever your choice, taxes are inescapable.

Property taxes are usually one of the larger annual costs associated with home ownership. Brampton seems to have a reputation as having a high tax rate compared with its neighbours while Milton and Oakville have long been heralded for their low rates. Using an assessed value of $500,000.00 I have compiled a comparison sample of tax rates for 5 local cities and towns, below.  

2014 Tax Statistics (figures taken from each city’s official website)

Municipality	Region Tax Rate	City Tax Rate	Education	Total Tax Rate	2014 Taxes for $500,000 home
Brampton	0.430992%	0.492340%	0.203%	1.126332%	$5631.66
Mississauga	0.430992%	0.274378%	0.203%	0.908370%	$4541.85
Oakville	0.329790%	0.341685%	0.203%	0.874475%	$4372.38
Milton	0.329790%	0.244771%	0.203%	0.777561%	$3887.81
Toronto	0.520085%		0.203%	0.7230085%	$3615.04

Based on the above figures, Brampton clearly has the highest taxes of the five municipalities: nearly $1100 more than second-place Mississauga. Oakville taxes are about $170 less than Mississauga, while Milton taxes are $1750 less than Brampton’s. Surprisingly, Toronto has the lowest of the five – almost $280 less than Milton and over $2000 less than Brampton.

Property and municipal taxes are not the only consideration in selecting where to live, however. You also have to take into account the city services your tax dollars (ideally) fund, including community centres and libraries, infrastructure and other such expenditures.

Whenever you purchase a property in Ontario, the Provincial Land Transfer Tax (LTT) is applied. Toronto charges a separate and additional Municipal LTT to properties purchased in the City. The Provincial LTT is slightly lower for new homes purchased from the builder. The LTT is calculated on the purchase price and is payable by the Purchaser upon registration of a Transfer/Deed of Land in the Ontario Land Registry Office on closing. Here is the formula to calculate Provincial LTT:

• 0.5% on the first $55,000 of the purchase price;
• 1.0% above $55,000 up to and including $250,000;
• 1.5% above $250,000 up to and including $400,000;
• 2% above $400,000.

Using our assessed value of $500,000, the LTT is $6475 for each city. Toronto home-buyers have to pay an additional Municipal LTT in the amount of $5725, or $12,200 total!

A note on HST: As you may or may not know, the HST only applies to the purchase of new homes. Resale homes are exempt from the HST. Does the purchase price include HST or is it payable upon closing? You may be eligible for an HST rebate if you buy your new (or substantially renovated) home from a builder. You can apply for the rebate either: immediately after closing if you move into the home as your primary residence, or; after you have rented it out for at least one year. If you re-sell the new home without moving in, you must pay the full HST amount when you purchase from the builder and cannot apply for a rebate.

New home buyers can apply for a 36% rebate of the federal portion of HST applicable (5%) up to $6,300 for homes costing $350,000 or less. If the price is between $350,000 and $450,000 (before tax), the rebate reduces proportionately. For homes $350,000 and under the GST paid reduces from 5% to 3.5%. There is no rebate for homes priced over $450,000. Claiming the rebate requires you to fill out Form GST190 and file it with your personal income tax. You can also apply for a 75% rebate of the provincial portion of HST applicable (8%) up to $24,000.

I hope this blog has been informative. If you have any questions or comments, please feel free to post! If you need any legal help with a real estate matter, I’d be more than happy to help.