Written by: Dina Nikseresht
In Ontario, purchasing a home comes with significant upfront costs, one of the largest being land transfer tax. Most conveyances of land are subject to land transfer tax, subject to limited exemptions. For first-time home buyers, the Government of Ontario offers a land transfer tax refund that can reduce closing costs.
Land transfer tax is calculated based on the value of the property. For more information on how land transfer tax is calculated, see our previous article: What Buyers Need to Know About Taxes and Rebates When Purchasing Property in Ontario).
Eligibility Requirements
To qualify for the refund, all of the following requirements must be met:
- You must be at least 18 years of age.
- You must not have previously owned a home or an interest in a home anywhere in the world.
- Your spouse must not have owned a home or interest in a home anywhere in the world while they were your spouse.
- You must occupy the home as your principle residence within nine months of the date of transfer.
It is important to note that how the home was acquired does not matter. Ownership obtained through a purchase, gift or inheritance, is still considered ownership for the purposes of this refund and will disqualify the individual from eligibility.
How to Claim the Refund
In most cases, your real estate lawyer will claim the refund at the time of registration of title, and the eligible refund amount will be automatically credited against the land transfer tax payable. If the refund is not claimed at registration, the full land transfer tax must be paid, and a refund application must be submitted to the Ontario Ministry of Finance.
How much is the Refund?
As of January 1, 2017, the maximum refund available is $4,000. However, if one purchaser is not a first-time home buyer the refund is calculated proportionately based on the interest acquired by the qualifying first-time home buyer.
Example: Two purchasers acquire a property, Person A takes 75% interest and Person B takes 25% interest. Person A is a first-time home buyer; Person B is not. Person A may claim 75% of the maximum rebate (i.e. 75% of $4,000).
Spouses
If one spouse previously owned a home before marriage, but not during the marriage, the qualifying first-time home buyer spouse may still include the spouse’s interest when determining the maximum refund available. However, if either spouse owned a home during the marriage, no refund is available to either spouse.
Residency Requirement
For agreements of purchase and sale entered into after January 1, 2017, the purchaser must be a Canadian Citizen or permanent resident, or must become one within 18 months of the date of registration. If status is obtained after registration, the purchaser may apply directly to the Ministry of Finance for the refund.
In circumstances where one spouse does not meet the citizenship or permanent residency requirement, the qualifying spouse’s refund is limited to their proportionate ownership interest. If the non-qualifying spouse later obtains the required status within 18 months, a further refund may be claimed for that spouse’s interest.
Audits and Penalties
Where a person received the refund payment due to deceit, falsehood, or any fraudulent means a maximum fine of $4,000 may be imposed. All refund applications are subject to audits by the Ministry of Finance.
Final Note
The land transfer tax first-time home buyer refund was introduced to help reduce the upfront costs of homeownership. Canadians planning on purchasing their first home should also consider additional tools such as The First Home Savings Accounts (FHSA), a registered plan that allows eligible individuals to contribute up to $8000 per year, on a tax-deductible basis, towards the purchase of their first home.
