Like many people who were house-hunting as 2008 approached, Sherille Layton and her husband, Edward, wanted to stay ahead of Toronto's new land-transfer tax. They wound up signing an agreement to buy a North Toronto home, closed the deal, and even moved in — all before Christmas.
As an agent with Bosley Real Estate Ltd., Ms. Layton was well aware that had they waited until January to buy the house on Erskine Avenue, and pushed the closing date to Feb. 1 or after, they would have had to pay the new tax on top of a selling price of more than $800,000, and the provincial land transfer tax.
She figures they saved a cool $13,000 thanks to the good timing.
"That's an awful lot of extra money," she says.
Now that the tax is a reality — it came into effect on Feb. 1 — home buyers other than some first-time purchasers won't be able to avoid it as the Laytons did.
But there are some things buyers should keep in mind when they are figuring out their overall financing arrangements.
The new tax, which was passed by council in October, generated a lot of opposition when Mayor David Miller introduced it last summer. He argued that the additional revenue was badly needed by the cash-strapped city to maintain services and fund new projects.
But some groups — including the real estate industry — condemned the tax.
The critics said the tax would hurt the housing market, and jeopardize the chances of many people — especially first-time buyers — of owning a home.
Ms. Layton calls the new measure, "a crazy tax that doesn't make any sense.
"Buyers have spent ages saving and have set aside their closing costs and worked-out budgets. This tax throws quite a spanner in the works," she says. For some potential owners, "the extra $4,000 or $5,000" in tax may be just what puts owning a home out of reach, Ms. Layton adds.
"The market has been very busy so far this winter," she says. "In February, we will start to see what the effect [of the new tax] will be."
Under the new bylaw, buyers will pay 0.5 per cent on the first $55,000 of their home's value, 1 per cent between $55,000 and $400,000, and 2 per cent on any amount over $400,000.
There is one group that can avoid the tax, or at least a part of it: first-time buyers. They are eligible for rebates of up to $3,725 on residences costing up to $400,000. The provision covers homes with one but no more than two self-contained units under one ownership — a detached house, semi-detached single-family residence, townhouse, row house, duplex or condominium. That includes a home with a second suite, for instance, but not a triplex.
For a buyer whose budget leaves no room to manoeuvre, some lending institutions will, for a limited time, cover it — in the form of a loan — if the purchaser negotiates a mortgage with them.
TD Canada Trust, for instance, will cover the tax to a maximum of $15,000 if a customer agrees to a five- or seven-year fixed mortgage. The offer, which is good until March 21, is meant to help consumers "make the purchase they had hoped to and not miss this home-buying opportunity," says Joan Dal Bianco, vice-president for real estate-secured products for TD Financial Group.
"We decided not to make it specifically tied to the amount of the tax, but to give 1.5 per cent in cash back to help the consumer meet the land-transfer tax increase [on top of the existing Ontario land transfer tax]," Ms. Dal Bianco explains. "If they happen to have found the funds elsewhere, they can use the [new] funds for some other purpose."
