Property Tax in Canada
Understand the tax implications of buying or selling property in Canada...
Non-residents of Canada pay tax on income received from sources in Canada. The type of tax paid and the requirement to file income tax returns depends on the type of income received.
Canada has tax treaties with many countries, including the United States and the UK. A tax treaty is designed to avoid double taxation for people who would otherwise pay tax on the same income in two countries.
Property Transfer (or Purchase) Tax / Land Transfer Fees
These are calculated between 0.5 to 2 percent of the property's total value (not applicable in Alberta, rural Nova Scotia or Saskatchewan). They are generally one percent of the first $200,000 of the value and two percent of the remainder.
Since the 2005 Provincial Budget, Property Transfer Tax (PTT) is now exempt for individuals buying their first home, as long as they meet certain criteria, namely:
- they are a Canadian citizen or Permanent Resident and have never owned a home anywhere in the world
- they have lived in the province for at least one year prior to purchase
- they have filed two Canadian tax returns within the last six years
- they must occupy the property as their principal residence for the first year of ownership.
There are also proportional exemptions to PTT for first-time home buyers which vary by region, based on the fair market value of the property.
As of December 2007, the Ontario Provincial Land Transfer Tax exemption for first time buyers (up to $2,000) now applies to resale, as well as newly constructed homes. Similarly, from February 2008, Toronto (and this may spread to other provincial cities) has its own Land Transfer Tax which allows first time home buyers of both new and resale homes to qualify for a rebate.
If the property is vacant land, the house must be constructed within one year of closing and the buyer must live in the house for the balance of the year.
There are other criteria needed to qualify for the PTT exemption so it is best to consult a lawyer or notary.
The typical fees associated with preparing and filing a clearance certificate, paid by the seller, range from $300 to $1000, depending on the complexity of the transaction.
Capital Gains Tax
This is not applicable on a principal residence
Goods and Services Tax (GST)
GST of 5 percent is only payable on newly constructed homes and is often included in the quoted sales price. New home buyers of residences costing $350,000 or less can apply for a partial rebate of the 5 percent GST, applicable on the purchase price, as long as the home is going to be the purchaser's primary place of residence.
For new homes priced between $350,000 and $450,000 before GST, the GST rebate reduces proportionately. New homes priced $450,000 before GST or higher, do not receive a rebate. There is no GST on resale housing unless the home has been substantially renovated, and then the tax is applied as if it were a new home.
GST questions are best answered at source, that is, the Revenue Canada website, or by an accountant who is familiar with real estate revenue taxation.
Provincial Sales Tax (PST)
This ranges from 0 to 10 percent and again, is normally included in the quoted sale price.
Harmonized Sales Tax (HST)
This is a combination of GST and PST and is used in British Columbia, Ontario, and the Atlantic provinces of New Brunswick, Newfoundland and Labrador, and Nova Scotia. The HST is collected by the Canada Revenue Agency, which then remits the appropriate amounts to the participating provinces.
Every province except Alberta has implemented either a provincial sales tax or the Harmonized Sales Tax. The territories of Yukon, Northwest Territories, and Nunavut do not have either the HST or territorial sales taxes. Only the GST is collected. The three northern jurisdictions are heavily subsidised by the federal government, and its residents receive some additional tax concessions, due to the high cost of living in the north.
HST is applicable on most goods, services and consumer products including new homes. Rebates are given for the construction or purchase of most newly constructed or substantially renovated houses, used as a primary place of residence. HST is also applicable to any costs and fees associated with the property purchase, including legal/notary fees, realtor commissions, strata fees, residential heating fuel, commercial rents, smoke detectors, fire extinguishers, repairs, cable TV, internet, electricity, gas, renovations, painting and other professional services.
This is an annual fee levied within local communities, which means there are many different rates within each province. The difference between Property Tax and Property Transfer Tax is that PTT is a one-time provincial tax which comes into effect upon transfer of property; and Property Tax is paid annually to the local taxation authorities. It is determined by applying the value of the property, as assessed by the provincial assessment authority, to the current tax rates as stated by the local tax authority. The amount can differ each year but generally Property Tax falls between 0.5 to 2.5 percent of the home's market value.