Land Transfer Tax In Toronto: Fair To Home Buyers?

Is the land transfer tax in Toronto a fair charge for home buyers?

Potential home buyers know to be prepared to shell out a little — or a lot of — extra dough if they want to live in Toronto. But it’s not just the premium of living in one of North America’s great cities that drives up the total price; it’s the Toronto Land Transfer Tax (LTT), a levy unique to the city.

The tax was introduced in February 2008. It applies to the purchase of all properties within the city limits of Toronto. When a buyer purchases a Toronto-area home, they’ll pay the provincial LTT, as well as the Toronto LTT — both of which are calculated as between 0.5 and 2 per cent of the cost of the home.

A Big Impact To The Bottom Line

The percentages seem small, but they add up.

A Toronto-area house with a price tag of $450,000, for example, will cost a buyer $5,475 in provincial LTT and $4,725 in municipal LTT. That’s an extra $10,200 for a buyer to pay at closing time.

Is It Fair For Home Buyers?

The tax has proven to be a financial boon for municipal government. In 2012 alone, the LTT brought in $344 million and was credited with contributing to Toronto’s $248-million surplus that year.

So why, last Friday, did Rob Ford appeal to the Toronto Real Estate Board for their help in persuading city councillors to lower the tax?

Ford says the tax isn’t fair to homebuyers in Toronto, who don’t receive any “extras” for their double LTT payment. He hopes to see it reduced by at least 10 per cent.

A Deterrent To Housing Sales

Dr. Enid Slack, the director of the Institute on Municipal Finance and Governance at the Munk School of Global Affairs, agrees that the tax does come with drawbacks.

“It impedes household mobility,” Slack says. “People are less likely to move when there’s a higher cost attached to it.”

As well, a 2012 C.D. Howe Institute study  found that the tax has led to a roughly 16 per cent decrease in housing sales volume and has resulted in more Torontonians choosing home renovations over moving.

Toronto residents largely seem in favour of eliminating or at least reducing the LTT. A May 2013 Ipsos Reid poll found that 65 per cent of Torontonians are in support of plans to get rid of the Toronto LTT and 74 per cent of home buyers in Toronto and the GTA said they are more likely to purchase outside of Toronto because of the tax.

“The tax doesn’t bear any relationship to the benefits people receive from local public services,” Slack says. “When we think of local government, we think about the different services they provide and we like to have taxes that bear some relationship to those.”

There are some benefits to Toronto’s LTT. Though the tax isn’t tied to any specific public services, it has contributed to a surplus that can fund important city programming, transit, or road work.

Plus, being a percentage of the sale price, “it’s easy to administer,” Slack says.

The LTT may not be bad news for all buyers.

“Some people like it better than paying increased property taxes every year,” says Slack.

Related Topics

Buying A Home / Mortgages / Selling Your Home

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