Land Transfer Tax Refunds for First-Time Home Buyers in Ontario Explained

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    Purchasing land in Ontario can be a challenging process, particularly for first-timers. If you are a first-time home buyer, you need to consult a real estate lawyer in North York or educate yourself on how to save money during this important transaction. These cash-saving opportunities are put in place to encourage more people to venture into the real estate market. One of these special advantages is land transfer tax rebates.

    What is a Land Transfer Tax Rebates?

    One of the taxes you must pay when you buy land in Ontario is the land transfer tax. In this article, we will highlight the meaning of a land transfer tax rebate, demystify myths about qualifying and applying for this refund as well as how you can qualify for it. We will also offer first-time home buyers tips to make their real estate purchase easier.

    Do First-time Home Buyers Pay Land Transfer Tax?

    Land transfer tax applies to all conveyances of land in Ontario. Different tax rates apply depending on the value of the property as well as the date of agreement of purchase and sale.

    As a first-time homebuyer, you may receive full or partial refunds of the tax you have to pay. Land transfer tax rebates are only applicable for sale and purchase agreements:

    • Signed before December 14, 2007 for newly constructed homes
    • Signed after December 13, 2007 for all homes, including resale and newly built properties

    Land Transfer Tax Refund Rules for First-Time Home Buyers in Ontario

    If it is your first time buying a home, you may qualify for a full refund of this tax or a portion of it. Generally, land transfer tax refunds are given to any first-time homebuyers at least 18 years old. You only qualify as a first-time homebuyer if you or your spouse do not own a home anywhere in the world. If divorced or separated, your spouse cannot have owned a home or interest in a home anywhere in the world while you were still together. The land transfer tax rebate is given to homebuyers regardless of how they have acquired the home, e.g., through inheritance, as a gift or mortgage purchase. Keep in mind that there are other federal tax programs put in place for homebuyers for which you may also qualify.

    Are You Qualified for Land Transfer Tax Rebate?

    To qualify for the land transfer tax rebate:

    • You must be at least 18-years old
    • You must not have owned an interest in a home or a home anywhere in the world
    • Your spouse must be a first-time home buyer or have no interest in a home, or owned a home anywhere in the world during your marriage
    • You must occupy the home as your principal residence within the first 9 months from the date of the transfer
    • If you entered into a sale or purchase agreement of the home before December 14, 2007, the home must be newly constructed (i.e. purchased from the builder)

    If you already have a home that you acquired as a gift or through an inheritance, you do not qualify for the land transfer tax rebate. This rebate is not available to anyone who has previously owned a home regardless of how it was acquired.

    Are There Any Additional Requirements for Land Transfer Tax Refund?

    Land transfer tax refunds are now only available to first-time homebuyers who are Canadian citizens and permanent residents. These eligibility criteria were put in place beginning of January 1st, 2017.

    However, homebuyers who signed purchase and sale agreements before November 14, 2016, will still be eligible for land transfer tax rebates even if they are not Canadian citizens or permanent residents.

    Homebuyers who would have otherwise been eligible for the tax refund but fail due to their citizenship or residency status are given 18 months after registration to qualify for this rebate. This means that, after obtaining your Canadian citizenship or permanent residency status, you may go ahead and apply for the refund even after the transaction was closed so long as it is within the 18-month period after the registration of the conveyance or the date the unregistered disposition occurs.

    Edibility criteria may also vary when the homebuyer has a spouse who is not a Canadian permanent resident or citizen. A purchase or sale agreement signed after November 14, 2016, by a homebuyer whose spouse does not meet the residency or citizenship requirement on the day of the conveyance or the date on which the unregistered disposition occurs cannot incorporate the interest of his or her spouse in ascertaining the maximum refund. Nevertheless, if the spouse attains citizenship or permanent residency within 18 months after the date of the conveyance or disposition, the homebuyer can go ahead and claim his or her spouse’s interest. Both claims for land transfer tax refund can be combined but must not exceed $4,000.

    For your land transfer tax refund claim to be considered valid, it must be applied within 18 months after the date of registration of the conveyance or the date the unregistered disposition occurs.

    Once you submit a claim for the refund, the Ministry of Finance may perform an audit of the application. There are rare cases where the applicant can be issued a fine or face charges for obtaining or attempting to obtain this tax refund through deceit or any fraudulent means. Individuals who attempt to obtain land transfer tax refunds fraudulently or deceitfully may face up to $4,000 in fines.

    Are You Eligible for Land Transfer Tax Refund if no Transfer Has Occurred?

    There are unique cases where the non-resident speculation tax or land transfer tax is paid, and the transfer did not take place. This often occurs when the taxes are paid on notice of an agreement of sale and purchase. The rebate is often issued even though the transfer was not assigned or was at an end.

    To qualify for a land transfer tax refund before the transfer occurs, the purchaser needs to confirm that:

    • There will be no amendments to the agreement after the negotiations with the vendor.
    • The purchaser’s interest has not been assigned.

    If the land transfer tax has been overpaid erroneously, the excess amount will be returned to the individual who made the payment. The amount deducted as land transfer tax will depend on the taxing regulation of your city. Any excess is refunded by the Ministry of Finance.

    Some common scenarios where an overpayment may occur include:

    • When the tax payment is incorrectly calculated when submitting a claim on the electronic land registration system.
    • When the wrong tax rate is applied to the consideration value.
    • If the taxpayer pays land transfer taxes twice on the same property.
    • If the amount of the consideration has been reduced.
    • If land transfer taxes have been paid yet, it was not payable at all.

    With the help of a real estate lawyer, you can get a full refund of the overpayment.

    How to Apply for the Refund in Ontario as a First-Time Home Buyer

    You have three options to claim land transfer tax refunds:

    • Apply through the land registry office
    • Apply via the Ministry of Finance
    • Visit the electronic land registration system and submit your claim

    You may claim the first-time homebuyer land transfer tax refund at the time of closing while the property is being registered or at a later date. Claiming the refund at registration is often recommended since your real estate lawyer has all the information needed to file the claim electronically while they register your property through Ontario’s electronic land registration system.

    Alternatively, you can fill in the necessary forms and claim the refund at the land registry office. In this case, you will need to submit two documents: Ontario Land Transfer Tax Refund Affidavit (for first-time homebuyers and properties that qualify) and the transfer/deed. Once you receive the tax refund, the amount of tax payable during the transaction will be reduced.

    Most people will apply for this tax rebate much later after the property is already registered. This is often the case when the homebuyer is not eligible but plans on becoming eligible and claiming the refund later. In such a case, the homebuyer is required to pay the land transfer tax in full and claim a refund later. These applications are submitted to the Ontario Ministry of Finance together with supporting documents such as the agreement of purchase and sale, proof of occupancy (bills and ID) as well as proof of citizenship or permanent residency status.

    How Fast Should You Apply for the Land Transfer Tax Refund?

    If you are a first-time homebuyer in Ontario, your land transfer tax refund request must be submitted within 18 months after the date of the transfer. Other tax refund requests can be made within 4 years after the tax payment is made.

    Purchasing Home for the First Time from a Builder vs Purchasing Resale Home

    One of the questions we get asked the most is whether you still qualify for a land transfer tax refund if you purchase your first home from a builder. To be eligible for a refund of land transfer tax for first-time home buyers, the unit must be newly constructed and registered under the Ontario New Home Warranty Program (ONHWP).

    Purchasing From a Builder

    You may not qualify for the land transfer tax refund if you purchase your first home from a builder and:

    • The home has been reconstructed from an old building or renovated or
    • If it is not going to be your principal residence

    In case of non-spousal joint ownership of property, such as a daughter and mother purchasing a family property, they can still claim a refund if one of the two members qualifies. For instance, if the property was worth $2,000,000 and the daughter is a first-time home buyer and owns a 50% share of the property, they can submit a refund of 50% under the Ontario Land Transfer Tax Refund. Note that there is a maximum refund that can be paid. The rebate in this situation max. allowed will be $2,000.00.

    Claiming an Instant Refund for New Homes

    It is possible for a homebuyer to claim first-time home buyer Ontario land transfer tax refund immediately when the real estate purchase is closed. Any land transfer tax amount that is above the allowed maximum refund must be paid on closing.

    However, if the homebuyer fails to claim the refund immediately at the time of closing, even though they are eligible, an application can be sent directly to the Ministry of Finance at a later date. The ministry will not pay any interest if the refund is claimed late. Applicants are required to submit all the necessary documents to ensure the processing of the refund claim is successful. These documents include:

    • A completed affidavit form of the first-time home buyer Ontario Land Transfer Tax Refund
    • A copy of the registered transfer/deed
    • A copy of the sale or purchase agreement
    • A copy of the statement of adjustments at the time of deal closing
    • A copy of the new home warranty certificate

    Purchasing a Resale Home

    If you are a first-time homebuyer purchasing a resale home, you may still qualify for the land transfer tax refund. You will only be able to receive a refund of a maximum of $4,000.00 if the purchase agreement is signed on or after December 14, 2007.

    To receive a tax refund after purchasing a resale home, you must follow the steps below:

    1. First, pay land transfer tax at the time of closing the real estate transaction.
    2. After closing, you will need to complete the Land Transfer Tax Refund Affidavit and submit this together with a copy of the transfer/deed, purchase, and sale agreement to the ministry. It is important that you get a lawyer to review these documents and help you submit all the supporting information together with the forms.
    3. All applications for tax refund can only be submitted after closing the real estate transaction.
    4. To qualify for the tax refund for a resale home:
    • You must be at least 18 years of age
    • You must use the property as your principal residence within 9 months of closing the real estate transaction
    • If you have a spouse, none of you should have owned property anywhere in the world before

    Exemptions From Paying Land Transfer Taxes

    There are unique situations where homebuyers may be exempted from paying land transfer taxes. For example, if you and your spouse are going through separation proceedings, you may be exempted from paying land transfer taxes if you receive a court order or you both agreed to the transfer in writing, and the land is given without consideration in return.

    How a Lawyer Can Help

    – Lawyers Ensure a Proper Start

    To start with, a real estate lawyer can come in at the beginning of the transaction to ensure that all the right procedures are followed during the acquisition of property. The lawyer will educate you on your tax obligations so that you understand all the costs involved during closing.

    – Lawyers Handle the Paperwork

    An experienced real estate lawyer will prepare and review all documents related to the purchase. They include home loan documents, title deeds and transfer documents. The lawyer will ensure that every transaction is done in a legal manner and that their client’s interests are protected.

    – A Real Estate Lawyer Protects Your Interests

    When it comes to specifics, the lawyer will thoroughly review the terms of the purchase and sale agreement, making sure that you are well educated on your rights when it comes to buying a house. Legal jargon can be so complicated, especially for a first-time home buyer. With a lawyer by your side, you eliminate the risk of signing a document you do not fully comprehend. Lawyers authenticate all legal documents and confirm everything is in order before submitting them to their clients for signing.

    – Get Help with Closing

    The final stage of any real estate transaction is closing. When you reach this phase, the property is transferred from the seller to the new buyer. This is certainly one of the most important steps in any transaction. Proper documentation must be done to show that you officially own the property, which is why you can not take any chances at this stage of the process. A key procedure that the lawyer will coordinate during closing is facilitating all financial transactions, including the deposit, closing costs, adjustments, and other fees. If there is a final amount that is due on closing day, the lawyer will help create a final statement that proves you have paid and gone through all the legal steps required to obtain the property as the new rightful owner.

     – Overall Legal Representation

    Whether you are unsure about the final closing costs or need to gain more insights into the entire home buying process, a real estate lawyer can help. Proper legal representation is critical as it protects you from any legal situation that could result in losing a huge investment.

    If needed, real estate lawyers can also represent you in litigation matters involving a property you have bought or sold. These legal professionals are not only well trained to draft the required documents but also participate in hearings and file appeals on their clients’ behalves when necessary.

    At MB Law, everyone from the support staff to the legal assistants and partners shares a common vision of helping clients effectively reach a swift resolution to their legal matters. We have served real estate clients all over Ontario. We meet deadlines and respect our clients’ wishes at all times. If you need help to ensure that your purchase or sale transaction goes as smoothly and headache-free as possible, get in touch with us today.

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