Buying a residential or commercial property in Ontario is about to get more expensive.
The Government of Ontario recently announced plans to hike land transfer tax (LTT) rates across the province, effective Jan. 1, 2017.
As part of those changes, the LTT rate on any portion of the sale value of a single-family residence exceeding $2 million will increase to 2.5 per cent from 2 per cent. That change covers properties including detached or semi-detached homes, condominiums and townhouses. For all other types of properties such as commercial, industrial, agricultural or multi-residential, the LTT rate on the portion of a sale value exceeding $400,000 jumps to 2 per cent from 1.5 per cent.
There is a grandfathering clause for agreements of purchase and sale on property transactions negotiated before November 14, 2016, as these transactions will be exempt from the LTT increase. However, purchasers relying on this clause should be cautious, as extensively amending a pre-November 14th agreement of purchase and sale could result in effectively creating a new agreement which would be considered to be effective after the grandfathering date.
The overall impact for entrepreneurs could be significant given the increase in LTT on the purchase of commercial properties. Developers and investors, for example, may think twice before buying land, or a new manufacturing facility. On the other hand, the market-wide effect of a surge in residential LTT will be minimal given the value of properties in question. High-net worth entrepreneurs in search of their next luxury home, however, will certainly feel pain in their pocket books thanks to the increase.
On a good note, Ontario is doubling the rebate on the land-transfer tax for first-time homebuyers to $4,000.
While no tax hike is ideal for small and medium-sized business owners, the effect of this one can be mitigated by closing impending or prospective property deals before the end of the year. But that doesn’t leave much time to negotiate and finalize what are typically complex purchases from a legal and accounting perspective. Still, the rush might be worthwhile if it means avoiding the prospect of ringing in the New Year with a 50-basis point property tax increase.
For more information on the LTT increase, contact our tax department.
Armando Iannuzzi, Partner