Monday, May 15, 2017

How Bad Is Toronto’s Land Transfer Tax?


I suppose it depends on who is asking, and who is answering.

The provincial and municipal governments love the tax!  The Province of Ontario will collect approximately $2.6 Billion in the fiscal 2016-17 year, and the City of Toronto would probably be bankrupt without the tax they collect.

The land transfer tax we pay here in Toronto is awful, and it's exceptionally punitive to those who want to transact in the market.

But how does it stack up against other cities and countries?  You'll be absolutely shocked.  As I was, this past weekend…


I'm not saying "land transfer tax is unfair" because I'm a real estate agent.

But no matter what I say, people will always take it with a grain of salt because I sell houses and condos for a living.

I just don't understand the tax, and I never have.

The best word I've been able to come up with over the years to describe the tax: arbitrary.

I suppose most taxes are arbitrary.  But then again, governments run off tax dollars, and they need to constantly create new ones in order to increase revenue.

So when "creating" something, perhaps one of the best ways to do so, is to be arbitrary.

But I also suppose I don't understand tax to begin with.

I've always felt that a particular tax should be directly attributable to something.

The whole purpose of tax is to fund public expenditures on behalf of those who it's collected from.

I can see how property tax is attributable to one's property.  You pay the tax, because you're using roads, hydro lines, you're having your garbage picked up, etc.

But beyond that, most taxes aren't attributable.

And the idea of paying for everything else that the government spends money on, well, I guess that's what income tax is for.

But we all know taxation doesn't end there!

In fact, there are actually very few taxes that are directly attributable, and if you wanted to "see" where your tax money is going, you'll go blind trying.

As a result, we have arbitrary taxation.

Sales tax?  That's a cash grab.  Buy something, pay a fee.  We're so used to it, that you won't call it arbitrary, but what role does the government have in the sale of goods and services?

There is no role.  That's not what taxation is about.

Taxation is about finding yet another way to take money away from people, to redistribute through society.

The eco-taxes aren't about saving the planet.  When you're taxed on each winter tire, or printer ink, or flat-screen TV you purchase, it's about the government being creative in finding ways to raise revenue.

So when it comes to land transfer tax, I think that's just as reasonable/unreasonable as the rest.

What I don't understand is why the tax is so much.

Why not spread the tax revenue around?  Come up with another dozen arbitrary taxes, instead of taking $30,000 from somebody buying a $1M house, especially when that $30,000 has absolutely nothing to do with the purchase and sale.  Transferring title, registering a deed – these things are paid for seperately!

I just can't, and have never been able, to comprehend the sheer amount of the tax.

Perhaps a refresher, for those who don't know how land transfer tax is calculated in Toronto.

We have the municipal portion, and the provincial portion, which work on sliding scales as follows:

Municipal Land Transfer Tax (Toronto)

0.5% from $0 to $55,000
1.0% from $55,001 to $400,000
2.0% from $400,000 onward

Provincial Land Transfer Tax (Ontario)

0.5% from $0 to $55,000
1.0% from $55,001 to $250,000
1.5% from $250,001 to $400,000
2.0% from $400,001 to $2,000,000
2.5% from $2,000,000 onward

As we know, there are rebates for first-time home-buyers as follows:

Municipal Land Transfer Tax (MLTT): Maximum $3,725
Provincial Land Transfer Tax (PLTT): Maximum $4,000

The provincial rebate was only $2,000, but Kathleen Wynne increased it, as she increased LTT on the amount over $2,000,000 from 2.0% to 2.5%.  That's washing one hand with the other, eh?

The funny thing about LTT is that they have this silly little categories for $55,000, as though you can buy anything for $55,000.

Unless you're a first-time buyer, purchasing a small 1-bed, 1-bath condo, you're getting screwed.

Let's say you're that first-time buyer, and you're purchasing a condo for $430,000.  You'd be paying a whopping $9,400 in LTT, but thanks to the rebates, you're only on the hook for $1,675.

Now let's say you're moving up from a condo and buying a semi-detached, 3-bed, 2-bath house for $1,000,000 – you're paying $32,200 in combined LTT.

And what about that detached house in High Park for $1,800,000?  You're paying $64,200.

And while you refuse to pity the rich person who is buying for $4,200,000, just consider that this person, after working his or her way up to this point in life, gets to write a cheque for an absolutely mind-boggling $171,200.

And for what?

What does the buyer of real estate get for the privilege of writing that massive cheque?


You get nothing.

You don't get additional garbage pickup, you don't get to skip lines in the E.R., and you don't get to turn left at Jarvis & Queen between 4-6pm on a weekday.

This tax simply goes into the coffers with all the other taxes, and it blends together, completely indistinguishable.

I suppose that is the problem I have with the tax.

There's just no reason for the buyer of a $1.8M house to pay the government(s) $64,200.

If anything, the government should come by that person's house with a "Congratulations" cake, and say, "Hey, you worked hard to get to this point, congrats on being able to afford this."  Instead, the government is like a shark that smells blood in the water, and goes in for the kill.

Where there's money, there's more money.  If somebody can afford to buy real estate, they should have to pay a punitive, unnecessary, arbitrary tax.

This past weekend, my brother was visiting from England, where he lives with his family.

We were sipping our latte's, talking shop, and while on the subject of my impending housing search, I began a rant that incorporated most of what I wrote above.

My brother patiently heard me out, listening to every word (and curse), and when I finished, he wryly said:

"Are you familiar with Stamp Duty?"

The question, asked ever-so-slowly, came with a little smirk; a smirk that I have gotten to know over the last thirty-plus years.

I paused for a bit, thinking about whether or not "stamp duty" was the unfortunate job of the person who has to lick all the stamps in the office of a wedding planner, each and every day, and at the same time contemplating what that smirk was all about.

"No," I told my brother.  "Why?"

"Ooooooooh," he replied, with the smirk growing into an ear-to-ear smile, "You miiiiiiiight want to look into it."

"I think it might put things, here in Toronto, in perspective," he said, as his teacup clinked against his saucer.

I knew I was missing something.

I know England has a very high personal income tax rate.  What the heck could "stamp duty" refer to?

So I did what 99.99% of the population does when they don't know something: I Googled it.

And I was absolutely shocked.

"You have to be kidding," I said, as my brother sat there with a grin.

"This can't be correct," I said, as my brother replied, "Oh, it's bloody accurate."

Geez.  Spend a couple of years in England, and suddenly you're Clive Owen.

Stamp duty, ladies and gentlemen, is land transfer tax, for Brits.  And the Welsh, and the Northern Irish.  The Scots got off……..wait for it……….scot-free

The stamp duty, or land transfer tax, is just absolutely insane over there.

Here's how their sliding scale breaks down:

0% from £0 to £125,000
2% from  £125,001 to £250,000
5% from £250,001 to £925,000
10% from £925,001 to £1.5 million
12% from £1.5 million onward



Our highest rate is 2.5%.

And theirs is twelve?

Let's compare that to ours, just for fun.

Ignoring the exchange rate, since everything costs more over there anyways, let's look at our examples again.

The $430,000 condo?

The stamp duty would be $11,500, compared to $9,400 here in Toronto, and it's only that low because they have no duty on the first $125,000.

The $1,000,000, 3-bedroom semi?

$43,750 in the UK, compared to $32,200.

The $1,800,000 house in High Park?

$129,750 in the UK, compared to $64,200.

And that poor schmuck who worked his ass off to buy a $4,200,000 house?

$363,750 in the UK, compared to $171,200.

It's absolutely, positively, insane.

And consider that the price of real estate is much higher over there, and there are far more $20,000,000 houses!

Can you imagine?  $20 Million?  The buyer writes a cheque for $1,943,750 for taxes!

What is the government over there trying to accomplish?

It's even crazier than the Ontario Liberals' "16-Point Plan."

I've heard anecdotally that people who own property in England never become "move-up buyers."

The owners of a 3-bed, 2-bath flat won't sell that property and buy a new one, because of the stamp duty.  Instead, they rent out the flat that they own, and seek to rent a 4-bed, 4-bath flat at a higher price.

In turn, this significantly lowers the amount of properties that come available for sale, which as we all know, drives prices up.

Folks, I cringe when I hear the words "land transfer tax," and I get riled up, and want to rant.

It bothers me to no end, as you can imagine.

But as much as love Earl Grey tea, skin-tight dress-pants, and Downton Abbey, I thank God I don't live in jolly ole' England, and have to hear the words "stamp duty."

Maybe, just maybe, we don't have it quite as bad as we thought, here in the T-Dot…

The post How Bad Is Toronto's Land Transfer Tax? appeared first on Toronto Real Estate Property Sales & Investments | Toronto Realty Blog by David Fleming.

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