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4 Taxes You Should Know About Before You Buy or Sell Real Estate
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Kormans LLP
August 22, 2018
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Whether you are selling or buying real estate, it is important to know and understand 4 different types taxes that you may incur as part of a real estate transaction. These taxes are in addition to the property tax that you will pay throughout the ownership of your land.
Harmonized Sales Tax (“HST”)
HST rules can be complicated in real estate transactions. As a general rule, real estate transactions are taxable. For example, HST applies to all new construction homes, commercial properties and certain types of vacant land. On new construction, you may be charged by the builder for the HST rebate depending on your circumstances. This part of the reason to have a real estate lawyer review your agreement ahead of time!
However, there are a few exceptions, such as the sale of used residential homes. Do keep in mind that HST does apply your real estate agent’s commission, as well as the legal fee and disbursements, since these are payments for services.
Land Transfer Tax (“LTT”)
Real estate purchasers pay LTT to the province and it is typically calculated based on the purchase price. If you are purchasing property in Toronto, you will also pay the municipal LTT. There are limited circumstances where LTT is not paid, such as certain transfers between spouses. Need help with your LTT calculations? Feel free to use this easy Land Transfer Tax Calculator. If you are a first-time homebuyer, speak with a real estate lawyer to confirm your eligibility for the LTT rebates.
Non-Resident Speculation Tax (“NRST”)
It has been several years since the Ontario Government has implemented the NRST, which is a 15% tax applied to certain purchases of residential real estate. This tax applies to foreign entities or taxable trustees who purchase residential property containing at least one and not more than 6 single family residences.
Business Income vs. Capital Gains Tax
Note that when you go to sell real estate in Ontario, the profit on the sale of your property could be taxed as either business income or capital gains, depending on the nature/use of the property and your particular circumstances. It is heavily recommended that you speak to your accountant before selling a property to confirm your potential tax liability. The good news? In most circumstances, when an individual sells their primary residence that sale is exempt from taxation on the sale proceeds!
It is important that you disclose your circumstances to your lawyer from the outset so that your tax obligations can be clarified! Our legal team looks forward to hearing from you on your next home purchase and/or sale!
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Discover how Limited Liability Partnerships (LLPs) in Ontario protect professionals like lawyers, accountants, and architects while allowing collaboration, resource-sharing, and individual liability protection.
In this blog post, we will cover in further detail some of the other key items that are important to consider when accepting HST indemnity from the Buyer for the HST self-remittance.
There is an all-too-common misconception by some Buyers and even by some Buyers’ professional, licenced realtors that the time period for the delivery of a Deposit pursuant to a resale Agreement of Purchase and Sale (APS) effectively provides the Buyer with a cooling-off period. The mistaken belief is that the Buyer has until the time and date specified in the APS for the delivery of the Deposit to have Buyer’s remorse for whatever reason and therefore elect to terminate the APS by not delivering the Deposit.
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