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Property Tax Guide for Buyers and Sellers

September 2024

When buying a property in Ontario, buyers need to account for the following taxes:

When selling a property in Ontario, sellers generally need to account for the following taxes:

1. Capital Gains Tax (for Investment Properties)

• What it is: If you’re selling an investment property or a secondary home (e.g., rental property, cottage), you’ll likely need to pay capital gains tax on the profit.
• How it’s calculated: Capital gains tax is levied on 50% of the profit (the difference between the purchase price and the selling price, minus eligible expenses such as renovations). This 50% gain is added to your taxable income for the year and taxed at your marginal tax rate.
• Exemptions: Capital gains tax does not apply if you are selling your primary residence, thanks to the principal residence exemption.

2. Harmonized Sales Tax (HST)

• When it applies: If the property is a newly built home or you’ve significantly renovated it, the sale might be subject to HST. HST doesn’t usually apply to the sale of a used residential property or a primary residence.
• For Commercial or Rental Properties: If you’re selling a commercial property or certain types of rental properties, HST may also be applicable.

3. Real Estate Commissions

• What it is: While not a tax, real estate commissions are a significant cost. Sellers typically pay the commission for both their own realtor and the buyer’s agent, usually around 4-5% of the sale price (plus HST on this commission).

4. Mortgage Discharge Fees

• What it is: If you still have a mortgage on the property, your lender may charge a fee to discharge or close the mortgage. These fees vary depending on the lender.
• Mortgage Prepayment Penalties: If you break the mortgage before its term is up, you may also have to pay a prepayment penalty, which could be either three months’ interest or an Interest Rate Differential (IRD), depending on the terms of your mortgage.

5. Legal Fees

• What it is: Sellers will need to hire a lawyer to help with the legal aspects of selling the property, such as closing the deal and transferring the title. Legal fees are not a tax but are a mandatory cost of selling a property.

6. Non-Resident Withholding Tax

• Who pays it: If you’re a non-resident of Canada, a portion of the sale proceeds may be withheld by the buyer or buyer’s lawyer (typically 25%, but it could be more) to cover potential tax liabilities. You can file for a clearance certificate from the CRA to reduce or avoid this withholding.

Key Differences: Primary Residence vs. Investment Property

• Primary Residence: If you’re selling your main home, capital gains tax is not applicable due to the principal residence exemption. However, you’ll still face closing costs like legal fees and realtor commissions.
• Investment Property: Selling an investment property may trigger capital gains tax, and HST may apply in certain cases (e.g., new construction, commercial properties).

**Consult a tax professional for a detailed breakdown of your tax liabilities based on your specific situation, especially for investment properties** or complex transactions. There have been changes implemented for individuals, corporations and trusts on investment properties sold after June 25, 2024.

When you own a property in Canada, particularly in Ontario, there are several taxes you may be responsible for. Here’s a breakdown of the most common ones:

1. Property Taxes

• What it is: Property taxes are paid annually to your local municipality, and they fund services such as schools, garbage collection, road maintenance, and other public services.
• How it’s calculated: Property taxes are based on the assessed value of your home, as determined by the Municipal Property Assessment Corporation (MPAC) in Ontario, multiplied by the local tax rate.
• When it’s due: Typically, property taxes are paid in installments throughout the year (quarterly or semi-annually) to your municipality.

2. Harmonized Sales Tax (HST)

• What it is: In Ontario, HST (13%) generally applies to the sale of newly built homes or substantially renovated homes, but not resale properties.
• When it applies: If you purchase a new property, HST may apply to the purchase price, though sometimes this can be built into the cost by the developer.
• Exceptions: There may be rebates for first-time buyers or for homes purchased for primary residence purposes.

3. Land Transfer Tax (at purchase)

• What it is: While this is technically paid at the time of purchase, it’s an important tax to remember when you initially acquire property. Ontario charges a Land Transfer Tax (LTT) when you buy real estate.
• Rebates: First-time homebuyers in Ontario may be eligible for a rebate on LTT (up to $4,000).
• Toronto: If you’re buying in Toronto, there is an additional Municipal Land Transfer Tax (MLTT) to account for, on top of the provincial tax.

4. Capital Gains Tax (When Selling)

• What it is: If you sell your property and it’s not your principal residence (e.g., an investment property), you’ll be subject to capital gains tax on the profit made from the sale.
• How it’s calculated: Currently, 50% of the capital gain (the profit from selling the property) is added to your income for the year, and taxed at your marginal tax rate. This inclusion rate may have changed depending on new tax laws, so consult current guidelines.
• Exemption: If the property is your primary residence, you may not have to pay capital gains tax at all (this is called the Principal Residence Exemption).

5. Income Tax on Rental Income

• What it is: If you own a rental property, any income you generate from rent must be declared as taxable income on your annual tax return.
• Deductions: You can deduct certain expenses, such as property maintenance, mortgage interest, insurance, and property management fees, which can help lower your taxable rental income.

6. Vacant Home Tax (Specific Municipalities)

• What it is: In some cities, like Toronto and Ottawa, there are new taxes imposed on vacant homes or properties that are unoccupied for a certain period.
• When it applies: For instance, Toronto introduced a Vacant Home Tax in 2023, requiring property owners to declare whether their property was vacant. Owners of vacant properties could face a tax of 1% of the home’s assessed value.

7. Non-Resident Speculation Tax (NRST)

• What it is: If you are a non-resident buyer of residential property in certain regions of Ontario, you are subject to the NRST, which is currently 25% of the property’s purchase price.
• Who it affects: Non-residents of Canada or foreign corporations buying residential real estate in the Greater Golden Horseshoe Region are typically subject to this tax.

Summary of Property-Related Taxes:

• Annual Property Taxes: Based on assessed value and paid to your municipality.
• HST (on new builds): 13%, with rebates for certain buyers.
• Land Transfer Tax: Paid at purchase, with rebates for first-time buyers.
• Capital Gains Tax: Paid on investment properties or secondary homes.
• Income Tax on Rental Income: If you generate rental income from the property.
• Vacant Home Tax: In municipalities with specific vacant property taxes.
• Non-Resident Speculation Tax: For non-resident buyers.

These taxes can vary based on the property type, its use, and your personal circumstances, so it’s essential to stay informed and consult with a tax professional or real estate expert.

Please contact Broker Donna Bulika for advice on selling or purchasing real estate in Toronto and to book your private consultation by filling out the form below or calling/texting at 416-797-6226, or emailing sold@donnabulika.com