Toronto Considering Land Transfer Tax Increase

The burden of land transfer taxIn early 2007, the City of Toronto instituted a Toronto Land Transfer Tax (on top of the Ontario Land Transfer Tax) as a way to increase revenues while avoiding large (and politically unpopular) increases in property taxes or decreases in expenses. This tax applies only to properties in the “Old Toronto” 416 area code.

For perspective, on the purchase of a $1,000,000 house (roughly the average in Toronto), the Ontario Land Transfer Tax (OLTT) is approximately $16,500, and the Toronto Land Transfer Tax (TLTT) is the same, for a total of about $33,000. This is a cash payment required on closing, and cannot be added to your mortgage, so it takes a significant chunk out of the buyer’s cash available for his down payment.

For homeowners thinking about moving up, this can be a huge deterrent, since the money saved on the land transfer taxes, combined with the commission on selling their home, could be put to better use expanding/renovating their existing home and staying put. Two separate studies by the C.D. Howe Institute have shown that the TLTT has directly impacted mobility and therefore reduced the number of homes being sold in Toronto.

The recent addition of the federal government’s mortgage qualification ‘stress test’ has added yet another restriction on would-be move-up buyers, and the combination of the two has contributed greatly to the huge drop in GTA sales volume since the peak in 2016.

The City of Toronto has come to rely heavily on the revenue from the TLTT, and the drop in sales volume over the past couple of years has resulted in a ‘budget shortfall’ which the City is seeking to offset by increasing the TLTT on higher priced homes (likely $3 million plus). Of course, this will likely reduce the number of these homes that will be offered for sale as well as the number of buyers able to purchase them. Because they are at the ‘top of the food chain’ in the Toronto real estate market, these reductions will reverberate all the way down to first-time buyers and, ironically, could end up reducing rather than increasing total revenue from the TLTT. Yet another example of government interference in one corner of the market potentially leading exactly the opposite of the results being sought. Hopefully sanity will prevail and this measure will not be instituted, but I’m not optimistic.