No one ever said property in Toronto was cheap, and property taxes can make a significant dent in your bank account. But there are some ways to lessen your real estate tax burden, so let’s take a look at them here, alongside the taxes they relate to:
Taxes When Buying
Harmonized Sales Tax (HST)
HST is a combination of federal sales tax (known as GST and charged at 5%) and provincial sales tax (8%); it only applies to new condos and houses bought from a builder, and comes to 13% of the purchase price.
You do not have to pay HST on the purchase price if you are buying a resale property, but you do still need to pay HST on fees for services associated with the purchase (such as legal fees).
HST Rebates
If you’re buying a brand new home in Toronto, there are two rebate programs available. The first is the Federal HST Rebate, which reduces the federal portion of HST from 5% to 3% for homes worth up to $450,000. This 2% saving is worth $9,000 on a $450,000 home.
The second rebate is via a provincial program, the Ontario New Housing Rebate, and is applicable only to new condos bought as a primary residence; it equates to a 75% rebate on the provincial portion of HST, up to a maximum of $24,000 or the first $400,000 of the purchase price.
By combining both HST rebates (only possible for a new condo bought as a home) you could save $33,000 in tax on a $450,000 purchase.
If you’re torn between buying a house or a condo and want more info on their respective pros and cons - financial and otherwise - take a look at our piece on “Buying in Toronto: Condo vs. House.”
Land Transfer Tax (LTT)
This tax applies to all buyers, and is calculated based on the property’s purchase price. Buyers in Toronto will have to pay LTT to both Ontario (PLTT) and Toronto (TLTT). You can see how much LTT you’d have to pay for a given purchase price in Toronto by using the Toronto Real Estate Board’s LTT calculator, found here.
LTT can be one of the highest tax bills applicable to property; a $750,000 property purchase would be subject to $22,950 in LTT, or about 3%. The relative rate of taxation increases as the property price increases.
LTT Rebate for First-Time Buyers
If you’re a first-time buyer and purchasing a primary residence, you are eligible to receive up to $4,000 back from the province, and an additional $4,475 from the City of Toronto. These rebates are only applicable to residential properties bought as a home and lived in as such within 9 months of purchase; you also need to be a Canadian resident. In addition, you can claim $750 as a tax credit as a first-time buyer.
Foreign Buyer’s Tax
If you’re buying a property in Toronto and are not yourself a permanent resident in Canada, your purchase will be subject to a 20% tax known as the Non-Resident Speculation Tax (NRST).
NRST Rebate
You can get a full rebate on the NRST paid if you become a permanent resident of Canada within four years of the date of your property purchase.
Taxes When Selling
There are fewer taxes associated with the sale of a property.
Capital Gains Tax
If the value of your property has increased during your ownership, you may be wondering if you have to pay capital gains tax (CGT). The good news is that primary residences are exempt from CGT, but investment properties are not. 50% of the total profit from the sale of an investment property is taxed, at a level according to your income tax bracket.
CGT Deductions
You can reduce your capital gains tax bill by deducting property expenditures and closing costs from the property’s sale income. You can also use capital losses to offset capital gains and be smart about when you choose to sell (e.g. when your income is low, to reduce the tax rate used).
If you’re interested in more info on the ins and outs of property investment in Toronto, take a look at our article on the subject, found here.
Foreign Seller’s Tax
If you’re a non-resident, you may be subject to a withholding tax of 25% of the sale price of the property. You can find more information about the application of this through the Government of Canada.
Foreign Seller’s Tax Reductions
By submitting the proper paperwork to the CRA, you can reduce the withheld amount from the sale of your property to 25% of the net capital gain, rather than 25% of the sale amount. To go even further, you can file a tax return with the CRA reporting the capital gain, and by doing this you will only be taxed at the marginal tax rate, rather than at 25%. This significantly lowers the overall amount you pay as a foreign resident selling property in Canada.
Taxes While Owning - Property Tax
All residential homes in Toronto are subject to property tax, which is calculated based on the municipality’s tax rate and the property’s assessed value. The GTA’s various municipalities charge anywhere from 0.5% to 2.5% tax per year.
Source: Alex Irish 2020
Lower Assessed Property Value
Property taxes can amount to thousands a year. The primary way to consistently lower your property tax is to challenge the assessed property value used when calculating your property tax bill. But this is only helpful if you believe your property has been overvalued. A more predictable way to lower your property tax bill is to move to an area with lower tax rates.
Senior Homeowners Property Tax Grant
Senior homeowners in Toronto may be eligible for the Ontario Senior Homeowner’s Property Tax Grant (OSHPTG). The exact amount this grant comes to depends on the property tax paid, adjusted family net income, and marital status. The maximum 2023 payment is the lesser of $500 and the eligible property tax paid by or for you for 2022.
Heritage Property Tax Rebate Program
Toronto recently restructured its Heritage Rebate Program, so it is no longer as relevant to residential properties. But if you have a building that is classified as commercial or industrial and it has designation under the Ontario Heritage Act, then you may be eligible for a rebate up to 40% of annual taxes paid.
Low Income Property Tax Relief
Lastly, if you fall under the City of Toronto’s definition of a low income senior or low income disabled household, then you may be eligible for relief on your property taxes. This relief comes in several forms, depending on your and your property’s exact circumstances, so take a look at the City’s in-depth info if you think you may be covered.
Source: Wikipedia
A Little Legwork Can Save You Thousands
The relative cost of Toronto’s real estate taxes may be falling, but that doesn’t mean they don’t hurt when the bill comes through! Make the most of your options by maximizing your potential rebates, and find the best property for your budget with a Toronto-area real estate expert.