In September 2023, the City Council of Toronto approved imposing a Luxury Land Transfer Tax, starting January 1, 2024. The City mentioned that the new Land Transfer Tax provisions will help alleviate the City’s existing financial difficulties.
This is not an entirely new tax, however, it will result in a higher Land Transfer Tax for high-value properties ($3 million and higher). The City is introducing graduated Municipal Land Transfer Tax rates for high-value residential properties containing at least one, and not more than two, single-family residences by introducing additional thresholds.
The additional thresholds will be as follows:
| Value of Consideration | MLTT Rate |
|---|---|
| Over $3,000,000 and up to $4,000,000 | 3.5% |
| Over $4,000,000 and up to $5,000,000 | 4.5% |
| Over $5,000,000 and up to $10,000,000 | 5.5% |
| Over $10,000,000 and up to $20,000,000 | 6.5% |
| Over $20,000,000 | 7.5% |
As a refresher, the existing thresholds for Toronto’s MLTT are as follows:
| Value of Consideration | MLTT Rate |
|---|---|
| Up to and including $55,000 | 0.5% |
| $55,000.01 to $250,000 | 1.0% |
| $250,000.01 to $400,000 | 1.5% |
| $400,000.01 to $2,000,000 | 2.0% |
| Over $2,000,000 | 2.5% |
The new thresholds will be applicable if the closing date of a transaction falls on or after January 1, 2024, regardless of when the Agreement of Purchase and Sale was signed. For Buyers of Toronto properties where consideration is more than $3 million, this will mean higher closing costs.
Let’s take an example of a transaction involving a Toronto property where the purchase price is $4.5 million. As per the purchase price, the tax implications will be as follows:
| Land Transfer Tax | Under Current Thresholds | Under New Additional Thresholds |
|---|---|---|
| Ontario | $98,975 | $98,975 |
| Municipal | $98,975 | $118,975 |
| Total | $197,950 | $217,950 |
This means an additional cost of $20,000!
At this time, a Buyer who is about to enter into a transaction with a purchase price exceeding $3 million would, of course, prefer to set the closing date before January 1, 2024. We always advise our clients to allow sufficient time between the agreement becoming firm and the closing date. It’s not advisable to set the closing date too tight, especially for transactions involving a significant consideration. However, when comparing closing dates just after the new year with those before it, opting for a closing date before January 1, 2024, might save you thousands of dollars. The new provisions can also be addressed during negotiations with the Seller if the closing date will be shortly after the new year.
It is crucial to consult with a top luxury real estate professional such as Casey Ragan, mortgage broker, accountant, and real estate lawyer (which Casey can refer to you) before deciding on a quick closing date.
Starting next year, the new thresholds will need to be taken into account for transactions with a consideration of more than $3 million. We understand that these new provisions will have a significant impact on the Toronto luxury real estate market.
Casey Ragan
“Toronto’s Luxury Real Estate Authority”