Buying real estate in Canada, whether it is a home, land, or commercial property has become an increasingly expensive undertaking. While housing affordability concerns, higher interest rates, and an overall economic slowdown are significant contributing factors, burgeoning housing prices across Canada are also directly correlated to the spike in various cumulative taxes that determine the final price tag of any real estate transaction, as well as the long-term costs associated with being a homeowner or real estate investor.
In our last few blog posts, we have shared a comprehensive breakdown of the different housing options available in the city of Toronto and the Greater Toronto Area (GTA). It is our sincere endeavor to make sure that regardless of whether you are a first-time home buyer or not, you have sufficient information to guide and inform your buying decisions when you do decide to enter the region’s housing market.
In today’s post, we will focus on home-buying costs stemming from the various taxes that one has to pay in the course of owning, maintaining, or divesting real estate, and how these can considerably alter or impact buying decisions, especially for first-time buyers.
Irrespective of their type, property-related taxes are levied by the municipal, provincial, or federal government to shore up revenue reserves. In the case of municipal or provincial governments, these taxes help fund infrastructure needs and essential services, such as law enforcement/policing, education, healthcare/emergency services, and a host of public services provided by either or both levels of government.
Here are some of the taxes you can expect to pay if you are a homeowner or own any other kind of real estate in Canada.
Property Tax – A significant and lifelong expense associated with owning a residential or commercial property, this tax is based on the municipal government’s assessment of a property’s value (different from its market value) and the current residential rate. It is paid on an annual, bi-annual, quarterly, or monthly basis. In Ontario, property assessments are carried out once every four years.
The taxation rates can vary from province to province in Canada, based on how the property assessment is conducted, the funding needs of the local/provincial governments, and the property values in the region.
Taxes are collected by the local government from residential, commercial, and industrial property owners. A property tax has three components: a city tax, an education tax, and a city building fund. The city tax funds municipal services, such as waste management, public transportation, public safety, and emergency services. The local public education system is funded by the education tax, and the city building fund pays for building and maintaining city infrastructure and capital projects.
Land Transfer Tax – This forms a major component of your closing costs when you buy a new home or property. A one-time tax imposed by the municipal or provincial governments, or in some cases by both, this is usually paid at the time of closing a property sale by the buyer. Its amount varies based on the property purchase price, its location, and the local government’s policies.
Estate or Probate Tax – Levied on the value of an estate, home, or property following the death of the owner, such a scenario triggers a probate or formal court process to determine the estate’s value and ownership, including the legal entitlement to subsequent costs/debts related to its sale. This also includes the issuance of an estate certificate. The estate tax is charged on the value of the estate at the time an estate certificate is applied for and is issued.
Harmonized Sales Tax (HST) – Imposed by the federal and provincial governments, this sales tax is paid when you buy a new home or substantially renovate your property.
Capital Gains Tax – When you earn a profit on the sale of your real estate property, you become liable to pay a Capital Gains Tax. It is not applicable if the sale involves your primary residence.
Underused Housing Tax - Also known as the Vacant House Tax, this is meant to discourage homeowners from leaving their properties vacant and is levied if a house remains unoccupied for more than six months in a year.
With over two decades of experience in the region’s real estate market, the RE/MAX Royal Team Sachdeva Realty team has been helping first-time home buyers, returning clients, and real estate investors make the right choices in the GTA’s constantly evolving property landscape. As always, please feel free to reach out to us if you have any questions or need further clarification about the information shared here.
Have a great weekend!
