Realtors warn against increase to municipal land transfer tax
Proposed change could add $750 to the average Toronto home purchase, industry group says
First-time homebuyers could be hit with hundreds of dollars in additional closing costs if Toronto “harmonizes” its land transfer tax with the province’s, the Toronto Real Estate Board (TREB) is warning.
The difference could add $750 to the average home transaction and add an upfront expense that would hit first-time buyers particularly hard.
A city manager’s report that suggests Toronto could “harmonize” the municipal and provincial land transfer taxes is actually an increase, since the provincial tax is higher, said Von Palmer, TREB’s chief communications and government affairs officer.
“They use the word harmonization like it’s a break-even proposition. It is not. It’s an additional $100 million (for the city),” he said.
Toronto is already making $500 million a year more on the tax than the original $350 million estimate when it was introduced about eight years ago, Palmer said.
The average property transaction in the city includes about $11,000 in municipal land transfer tax, he said. That is in addition to a slightly higher land transfer fee charged by the province.
Ontario levies 1.5 per cent on property values between $250,000 and $400,000. The city report suggests raising Toronto’s 1-per-cent tax for that bracket to 1.5 per cent.
Harmonizing the rebate for first-time buyers from the city’s $3,725 to the $4,000 the province credits first-time purchasers, would not be enough to offset that difference, TREB said.
The changes that come before Thursday’s city executive committee, runs counter to efforts of senior governments to protect consumers, including a doubling of the provincial land transfer tax rebate for first-time buyers from $2,000 to $4,000 earlier this month.
TREB officials are due to meet Mayor John Tory’s staff on Monday.
They were not consulted prior to the release of the city manager’s report, Palmer said.
The mayor will review the report and discuss it with his colleagues, said an email from his spokesperson on Friday.
“The mayor is focused on keeping this city affordable and would like to see the rebate increased for first-time homebuyers so they would not see any increased costs as is contemplated in the staff report,” Amanda Galbraith said.
Under the report’s proposal, an average first-time buyer would pay an additional $475 to the city, according to TREB.
“This comes on the heel of a $75 administration fee that was tacked on last year to administer the land transfer tax. People didn’t notice that,” Palmer said.
When the city launched its land transfer tax, the average Toronto home cost about $400,000. In October, the average price, including all types of housing from condos to detached houses, had climbed to $770,480.
“The city has benefited from the rise in real estate prices from an old tax system that used to go after a luxury price at over $400,000,” said Royal LePage agent Desmond Brown, who said he would be “appalled” if the land transfer tax is raised.
It’s not fair to tax home-buying transactions when the infrastructure the city wants to build benefits all homeowners, said Zoocasa CEO Lauren Haw.
“Some sort of flat tax on property makes more sense. If we think it should come from properties, why doesn’t it just come from the property taxes?” Haw said.
“The reality is that property taxes in Toronto are far lower than the surrounding area.”
Although it won’t influence buyers in the core, the land transfer proposal could drive some consumers over the city borders, she said.
“If you’re in North York, or you’re in east Scarborough or the west part of Etobicoke . . . going across the border there can save you essentially half of your land transfer taxes, that absolutely factors in,” she said.
The city manager’s report says that harmonizing the municipal and provincial taxes could raise an additional $77 million in 2017 and then $85 million a year for Toronto.
It also suggests raising the land transfer on prices above $2 million, to 2.5 per cent from 2 per cent, and increasing the tax to 2 per cent from 1 per cent on properties valued over $40 million.
The changes could be in place as early as March 1, relatively quick compared to other taxes council is considering, such as parking levies or a hotel tax.
Toronto is the only city in Ontario with a municipal land transfer fee.
The mayor is also urging council to add tolls to the Gardiner Expressway and Don Valley Parkway to raise between $160 million and $330 million annually to fund transit expansion.