Toronto’s “Luxury Land Transfer Tax” Takes Effect on January 1, 2024
By Kormans LLPIn September 2023, the City Council of Toronto approved imposing a “Luxury Land Transfer Tax,” starting January 1, 2024. In addition to other revenue methods, such as removing the cap on $5/hour street parking and requesting the provincial government to implement a municipal sales tax or receive a cut from the existing HST, the City mentioned that the new Land Transfer Tax provisions will help alleviate the City’s existing financial difficulties.
If you are not yet aware of the new tax provisions, I know you must be thinking… another tax?!
To clarify, it is NOT an entirely new tax, however, it will result in a higher Land Transfer Tax for high-value properties ($3 million and higher). The City is introducing graduated Municipal Land Transfer Tax rates for high-value residential properties containing at least one, and not more than two, single-family residences by introducing additional thresholds.
The additional thresholds will be as follows:
| Value of Consideration | MLTT Rate |
|---|---|
| Over $3,000,000 and up to $4,000,000 | 3.5% |
| Over $4,000,000 and up to $5,000,000 | 4.5% |
| Over $5,000,000 and up to $10,000,000 | 5.5% |
| Over $10,000,000 and up to $20,000,000 | 6.5% |
| Over $20,000,000 | 7.5% |
As a refresher, the existing thresholds for Toronto’s MLTT are as follows:
| Value of Consideration | MLTT Rate |
|---|---|
| Up to and including $55,000 | 0.5% |
| $55,000.01 to $250,000 | 1.0% |
| $250,000.01 to $400,000 | 1.5% |
| $400,000.01 to $2,000,000 | 2.0% |
| Over $2,000,000 | 2.5% |
The new thresholds will be applicable if the closing date of a transaction falls on or after January 1, 2024, regardless of when the Agreement of Purchase and Sale was signed. For Buyers of Toronto properties where consideration is more than $3 million, this will mean higher closing costs.
Let’s take an example of a transaction involving a Toronto property where the purchase price is $4.5 million. As per the purchase price, the tax implications will be as follows:
| Land Transfer Tax | Under Current Thresholds | Under New Additional Thresholds |
|---|---|---|
| Ontario | $98,975 | $98,975 |
| Municipal | $98,975 | $118,975 |
| Total | $197,950 | $217,950 |
This means an additional cost of $20,000!
At this time, a Buyer who is about to enter into a transaction with a purchase price exceeding $3 million would, of course, prefer to set the closing date before January 1, 2024. We always advise our clients to allow sufficient time between the agreement becoming firm and the closing date. It’s not advisable to set the closing date too tight, especially for transactions involving a significant consideration. However, when comparing closing dates just after the new year with those before it, opting for a closing date before January 1, 2024, might save you thousands of dollars. The new provisions can also be addressed during negotiations with the Seller if the closing date will be shortly after the new year.
It is crucial to consult with professionals such as real estate agents, mortgage brokers, accountants, and real estate lawyers before deciding on a quick closing date.
Starting next year, the new thresholds will need to be taken into account for transactions with a consideration of more than $3 million. We understand that these new provisions will have a significant impact on the luxury real estate market.
We are here to assist you in navigating through your real estate transactions and answer your questions to ensure you are ready for your transaction. Please feel free to reach out to us if you have any questions regarding the new Toronto Land Transfer Tax provisions or if you require our assistance with any other matters. Contact our office at (905) 270-6660 or e-mail us at: Info@kormans.ca.
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Yashkaran Singh is an Associate Lawyer at Kormans LLP. You can reach Yashkaran here: ysingh@kormans.ca.
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