Every conveyance of land tendered for registration in Ontario, as well as every unregistered disposition of a beneficial interest in land are subject to land transfer tax ("LTT"), unless specifically exempt under the Land Transfer Tax Act, R.S.O. 1990, c. L.6 (the "Act") or a regulation under the Act. This QuickCounsel provides a high level overview of land transfer tax in Ontario for companies that own or are considering buying real estate in Ontario.
Calculating Land Transfer Tax
"Land transfer tax is calculated on the "value of the consideration" as defined in subsection 1(1) of the Act. It includes the purchase price, liabilities assumed, benefits conferred, soft costs and the cost of upgrades. In some instances, the value of the consideration is deemed to be the fair market value of the land, for example, leases over fifty years and transfers between corporations and shareholders."
Amounts up to and including $55,000: 0.5 %
Amounts exceeding $55,000 up to and including $250,000: 1.0 %
Amounts exceeding $250,000: 1.5 %
Amounts exceeding $400,000: 2.0%(only applies where land contains one or two single family residences)
Useful bulletins issued by the Ministry can be found at: http://www.fin.gov.on.ca/en/bulletins/ltt/
Toronto's Extra Layer of Land Transfer Tax
The author was not able to locate a reliable online MLTT calculator for commercial properties located in the City of Toronto. However, if you are considering purchasing a commercial property in the City of Toronto, an Ontario lawyer can quickly confirm the amount of MLTT payable in such a scenario by logging into Ontario's online land registration system.
Collection and Payment of Land Transfer Tax
In the case of unregistered dispositions, LTT is payable on the 30th day following the date of disposition and must be paid directly to the Ministry.
Transfers Involving Corporations
1. before the 30th day after the date of disposition of the beneficial interest in the land, the corporation must apply to the Minister for the deferral and undertake that for a period of at least three years immediately following the date of the disposition,
a) the corporation making the disposition and the corporation acquiring the beneficial interest in the land on the disposition will continue to be affiliates of each other, andb) the beneficial interest in the land will continue to be owned by the corporation acquiring the beneficial interest in the land on the disposition or by a corporation that is an affiliate of that corporation and with the corporation which made the disposition of the beneficial interest in the land;
2. security for the tax in a form and of a kind acceptable to the Minister is furnished to the Ministry. A letter of credit in a form approved by the Ministry is acceptable security; and
3. no conveyance or instrument or electronic document evidencing the disposition is registered.
1. the Ministry is of the opinion that the undertaking referenced in 1(a) and (b) above has been satisfied and no conveyance or instrument evidencing the disposition of the beneficial interest in land has been registered;2. a conveyance or instrument or electronic document evidencing the disposition of the beneficial interest in land to the corporation has been registered and LTT has been paid; or3. there has been a disposition of the beneficial interest in the land, or a conveyance of the land, by the corporation, or by an affiliate of the corporation, to a person who is not an affiliate of the corporation and LTT has been paid in respect of that disposition or on registration of the conveyance, as applicable.
For detailed information about the treatment of different types of unregistered dispositions of a beneficial interest in land, please refer to a detailed guide issued by the Ministry, which can be found at: http://www.fin.gov.on.ca/en/guides/ltt/guidenote1.html
Interest, Penalties and Offences
In addition to the administrative penalties discussed above, the Act provides that a person who fails to deliver a return as required or fails to remit the tax payable is, on conviction, liable to a fine of not less than 25% of the tax payable and not more than double the amount of the tax payable. In the case of false and deceptive statements made in a return, a person will be liable on conviction to a fine of not less than $1,000.00 (CAD) and not more than double the amount of the tax which is properly payable. On conviction, a person is liable to imprisonment for a term of not more than two years. The imposition of a penalty, fine, or both does not alleviate liability for tax.
LTT can represent the most significant closing cost in a real estate transaction, especially if the property is being purchased within the City of Toronto. It is important to consider the amount of LTT that will be payable before entering into an agreement of purchase and sale. Potential exemptions from LTT and opportunities to defer LTT should be considered when structuring transactions that will result in unregistered dispositions of a beneficial interest in land.