Toronto – Ontario is doubling the rebate on its land transfer tax for first-time homebuyers to $4,000 in an effort to help them enter the housing market, but it is also raising the same tax on homes that sell for over $2 million.
Finance Minister Charles Sousa said first-time homebuyers won’t pay any land transfer tax on the first $368,000 of a purchase price after the changes take effect January 1. He called the $4,000 rebates an “incentive” for would-be homeowners.
“It’s not going to change their ability to afford the house,” he said. “It is going to provide an added boost at their start.”
Sousa again said Ontario would not follow the lead of British Columbia, which in August imposed a 15 per cent tax on foreign nationals buying real estate in the Vancouver area. But he said the provincial government will block non-Canadian citizens from accessing the increased rebates for the land transfer tax.
There will also be a half-percentage point increase in Ontario’s land transfer tax on homes that fetch more than $2 million, a measure expected to affect less than one per cent of the population, added Sousa.
The province takes in over $2.1 billion a year in the land transfer tax. Any additional revenue generated by the increase in the levy on luxury homes will help pay for the doubled rebates for first-time buyers.
The government had expressed concerns about the difficulty first-time buyers face trying to enter the housing market, especially in the Greater Toronto Area, where the average home price last month jumped 21 per cent year-over-year to nearly $763,000.
Over the same time period, home prices in Hamilton grew nearly 20 per cent to an average of $535,000, while prices in Barrie soared 24 per cent to an average of $476,000.
Sousa defended the decision to make the land transfer tax changes province-wide instead of focusing just on the red-hot Toronto market.
“My concern is making decisions that do not have a negative impact on the surrounding areas,” he said.
The Ontario Real Estate Association (OREA) said the increased rebates of the land transfer tax will help more young families achieve their dreams of home ownership.
“This tax break will reduce a first-time buyer’s closing costs and help them save more for their down payment,” said OREA president Ray Ferris.
But Benjamin Reitzes, senior economist with BMO Capital Markets, said doubling the tax rebates won’t do much for buyers in Toronto.
“Given the runaway home price gains in Toronto and the surrounding regions, this hardly makes a dent in worsening affordability and, if anything, just adds more fuel to the housing fire,” Reitzes said in a note to clients.
Ontario’s land transfer tax rises from 0.5 per cent on the first $55,000 of a purchase price to two per cent for everything above $400,000. Toronto’s land transfer tax is one per cent on the first $55,000 and two per cent on the rest. Toronto offers rebates of up to $3,725 for first-time homebuyers.
By Keith Leslie
The Canadian Press