When setting their purchase budgets, real estate buyers usually pay special attention to the upfront costs of purchasing a home, such as down payments, transaction costs, land transfer taxes, etc., but they often ignore the later costs of owning the property. When you actually hand over the property, you will find that in addition to the obvious expenses such as water and electricity bills, there is also a larger holding cost-property tax.
Real estate tax is a property tax levied by the government on real estate properties, usually from users such as owners or tenants of the property. The government agency responsible for collecting real estate taxes estimates the value of the property and determines the amount of tax payable as a percentage of the property’s value.
On April 20, 2017, Kathleen Wynne, the governor of Ontario, Canada, and Charles Sousa, the director of the Ontario Department of Finance, jointly announced that Ontario would introduce real estate market control policies: including a 15% non-resident home purchase tax and a ban on speculation. off-the-plan properties, encourage developers to build rental housing, and strictly review the professional standards of real estate agents. Ontario will levy an additional 15% transfer tax on home purchasers who are not Canadian citizens or permanent residents and do not live in Ontario. This is officially called the “Non-Resident Speculation Tax” NRST (Non-Resident Speculation Tax). ).
However, for those who have become permanent residents within 4 years after purchasing a house, international students who have been full-time students for two years or more, and those with work visas who have legally worked for one year or more, the Ontario government will refund the sales tax.
In fact, in Canada, anyone who owns real estate is obligated to pay corresponding taxes. This tax is Property Tax, which literally translates as “property tax”. Sometimes we also refer to it as “land tax” in general. But this does not mean that you only need to pay taxes if you own land. As long as you own a government-registered property, you need to pay the taxes attached to the property once a year. Because this tax can often be substantial, it’s important to understand it early on in managing a family’s finances. Many Ontario residents are beginning to move from cities to small towns or rural life. While they enjoy relatively low housing prices and relatively larger homes, they may not realize that they are facing higher tax rates.
In Ontario, property tax rates vary widely based on the size of each urban area, its financial situation, and the value of the local housing market. Typically, larger urban centers, such as the City of Toronto, have lower property taxes due to more taxpayers, higher real estate prices, and less financial pressure. Correspondingly, in small cities and even rural areas, because the population density is low, the property tax in the entire area is evenly distributed to each property, which will lead to higher property taxes.
Another important factor that affects property taxes is the value of the property itself. The government generally conducts value assessments (Value Assessment) on properties within its jurisdiction on a regular basis, and the assessed value is determined by the Municipal Property Assessment Corporation (MPAC). Although the appraisal results may be lower than the true market value, they do gradually increase as the market value increases. What your final property tax bill will be is calculated by multiplying your city’s tax rate by that assessed value. This means that the greater the value of your home, the higher the taxes will be.
MPAC (Municipal Property Assessment Corporation) usually conducts a property valuation every four years. The government canceled the valuation originally scheduled for 2020 due to the epidemic, so the results of the 2016 valuation will be used until 2024. This means that the increase in real estate value during the period will not affect the calculation of property taxes on existing properties for the time being. This may give homeowners the illusion that the house is expensive, but the property taxes are not. After MPAC conducts a new assessment in 2024, property taxes will generally jump significantly, and everyone must be mentally prepared.
Ontario Land Transfer Tax (LTT)
One of the most controversial taxes in recent years is the land transfer tax. If you want to buy a house in Toronto, you must pay both the Ontario Land Transfer Tax and the City of Toronto Land Transfer Tax (LTT).
1. Overview
Land Transfer Tax (LTT) applies to any transfer of registered property or land, as well as the transfer of unregistered property or land to a beneficiary, unless there is an exemption applicable to other Acts and regulations. The scope of property or land defined here is very broad, including land, buildings, structures, buildings and structures to be constructed, attached fixtures (Fixtures) and any interests thereon.
Land Transfer Tax (LTT) is calculated based on a series of defined values, including purchase price, liabilities, income generated, soft costs and upgrade costs. In some cases, the data relied on for the calculation of Land Transfer Tax (LTT) may come directly from the market value of the real estate, such as some leases that may last more than 50 years or transfers between companies and shareholders.
2. Vacant land with a construction contract attached
If the construction contract is part of the vacant land used for the transaction, the Land Transfer Tax (LTT) on this subject matter is calculated as follows:
- total cost of vacant land
- total construction cost
3. Subject matter settled in foreign currency
All payments must be expressed in Canadian dollars. Land Transfer Tax (LTT) on this subject matter. For subject matter denominated in a foreign currency, the base date for conversion of the foreign currency into Canadian dollars is:
- The date on which the sales contract was concluded
- If there is no written sales contract, the registration date shall prevail.
4. The calculation method of land transfer tax in the City of Toronto is as follows:
tax example
| tax type | tax rate | tax |
|---|---|---|
| Municipal transfer tax ($55,000-$250,000 portion) | 1% | $1,950 |
| Municipal transfer tax ($250,000-$400,000 portion) | 1.5% | $2,250 |
| Municipal transfer tax ($400,000-$1,000,000 portion) | 2% | $12,000 |
| Foreign buyer speculation tax 15% $150,000 | 15% | $150,000 |
Another reminder is that first-time home buyers can enjoy certain land transfer tax discounts, with a reduction of up to 2,000 Canadian dollars.
Goods and Services Tax
If you are buying a new house, you need to pay goods and services tax, which is 5% of the selling price of the house.
If you buy a second-hand house, you don’t need to pay goods and services tax.
If you buy a second-hand house with more than 85% of the area renovated and renovated, you will also need to pay GST.
The Canadian tax refund deadline is before April 30 of each year. All tax residents can apply for a GST refund from the Canada Revenue Agency (CRA).
Sale Tax
Everyone should be familiar with this. HST is required for almost any consumption in Canada, with only a few exceptions in some provinces. It is worth noting that HST is not required for the purchase and sale of second-hand houses. However, buyers and sellers must pay HST on various service fees related to real estate transactions. In other words, the seller needs to pay HST for attorney fees, broker commissions, moving expenses, etc., and the buyer has to pay HST for home inspection fees, attorney fees, appraisal fees, mortgage default insurance, etc.
Buyers of new homes must pay 13% HST, but in order to appease consumers, the government provides a tax rebate of up to 24,000 for those priced below 400,000.
Capital Gains Tax
For Canadian residents, the main residence is exempt from paying capital gains tax when paying taxes. However, investors or non-residents must pay tax on the increase in value of the property.
The problem of huge real estate value-added tax often occurs when children inherit the real estate of their parents during their lifetime. If Pi’s parents bought a country villa for 30,000 yuan when they were young, and now it has appreciated to 1 million yuan, the heir will face an asset appreciation of 970,000 yuan, and he will need to pay 23% of the appreciation. Taxes are indeed a big expense. Many heirs had to put their properties up for sale because they were unable to pay taxes.
We can provide you with two solutions to this huge capital appreciation tax problem caused by inheritance: first, buy a life insurance that covers property appreciation tax; second, before housing prices rise so horribly , sell it to your heirs as soon as possible.
Property taxes during holding period
Property Tax, also usually called local tax. Land taxes are taxes that property owners in Canada must pay to municipal governments every year.
The annual local tax paid for your own residence cannot be used as a tax deduction. Rental income and maintenance fees from renting out the part of the owner-occupied house can be deducted from part of the land tax of the owner-occupied house.
The annual amount of local tax paid will be adjusted depending on the geographical location and housing price increase. For details, please refer to the relevant regulations of the Canada Revenue Agency (CRA): http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/ bt/rprt/xpns/ln9180-eng.html
How much does it cost to buy a house in Ontario?
Closing costs when buying a home in Ontario. Average closing cost guidelines in Ontario range from 1.5% to 4% of the purchase price, for example, closing costs on a $500,000 property purchase price range from $7,500 to $20,000.
These items are tax deductible
Tax deductions for rental properties
You can run house rentals as a business, and many related costs and expenses incurred during the operation can be tax deductible. That is to say, the remaining amount after deducting tax deductible expenses from the rental income, This is your taxable income.
Rental expenses that can be used for tax deduction include the following:
1. Interest
Interest expense is usually the most important tax-deductible expense among rental property owners. Generally speaking, interest expenses that can be used for tax deduction include: interest on mortgage loans for purchasing rental properties, interest on loans used to renovate rental properties, and interest on credit card consumer loans generated for goods and services provided for rental properties.
It is worth noting that there is no such tax benefit for properties used for self-occupation, which means that the mortgage interest on the self-occupied home cannot be used to deduct taxes. Therefore, those owners who want to buy two houses at the same time, one to live in and one to rent out, can do something about this. With the same interest rate, increasing your rental loan amount will allow you to get more tax deductions.
In another situation, if you unexpectedly win a bonus of 300,000 yuan, you want to use the money to invest in a rental house. At the same time, you still have a loan of 300,000 yuan that has not been paid off on your owner-occupied house. The best way at this time is to use the 300,000 yuan windfall to pay off the loan for your home, and then apply for a bank loan to buy a rental house. This will allow the interest to enjoy tax deduction benefits.
2. Property tax
If you sublet part of your home to others, you can apply for a partial property tax deduction based on the proportion of the sublet area to the entire home. If an independent second suite is rented out, the property tax can be fully deducted.
3. Maintenance and repair costs
All expenses incurred during the maintenance of a rental house (normal and necessary expenses, and the total repair price is within a reasonable range) can be fully deducted from taxes in the year in which the expenses are incurred. For example: the cost of repainting, repairing gutters and floors, repairing roof leaks, plastering and replacing broken doors and windows.
4. Travel expenses
Because all reasonable transportation expenses incurred by rental activities can be tax deducted from the rental income.
5. Water, electricity and heating bills
6. Office expenses
If you work from home and handle property rental matters, these expenses can also be deducted from the tax payable.
7. Salary expenses
If you hire someone to assist you with leasing matters, the wages and benefits you pay to them can also be deducted from the tax payable.
8. Loss due to accident or theft
It should be noted that the deduction amount does not cover the entire amount of the loss. The amount that can be deducted will depend on the extent of the loss and the extent of the insurance claim.
9. Home insurance
Tax deductions are generally available for all types of insurance purchased for rental properties, such as fire insurance, theft insurance, flood insurance, homeowners insurance, etc. If you also hire others to help with the leasing affairs, the employee’s medical insurance and compensation insurance costs may also be deducted.
10. Legal and other special service fees
Fees paid to lawyers, accounting and real estate management companies, real estate investment consultants and other professionals for leasing can also be regarded as operating expenses and are deducted from tax deductions.
In addition, management fees for condominiums and townhouses, advertising costs and other expenses incurred for advertising rental properties are also deductible.
Buying a house is tax deductible when filing taxes
Starting from 2009, if you meet the following conditions, you can enjoy a home buyer credit of 750 yuan (5,000×15%):
1. The applicant and his spouse have no real estate in their name in the current year and the previous four years;
2. Purchased existing or under-construction houses, townhouses, apartments, mobile homes, etc. in Canada that year;
3. If there is a disabled person in the family and the house purchased can bring convenience to them, they are not subject to the conditions for first-time home purchase (i.e. Article 1).
Property Tax Subsidy for Seniors
In order to help low- and middle-income seniors over the age of 64 bear the property taxes on their own homes, the province has introduced a Senior Homeowners Property Tax Grant (Ontario Senior Homeowners Property Tax Grant). During the annual tax filing season, eligible seniors who apply for this subsidy can receive an additional subsidy of up to CAD 500.
This benefit is paid annually and to receive this benefit an income tax and allowance return must be completed. A couple can only apply for one subsidy.
The amount of the subsidy is determined by income. For example, a single elderly person with an income of less than 35,000 yuan can receive a full subsidy of 500 yuan if the property tax is more than 500 yuan; if the income is between 35,000 and 49,985 yuan, the subsidy amount will be reduced accordingly; If it exceeds 49,985 yuan, it will not meet the subsidy conditions.
Energy and property tax credits
Ontarians who own or rent a home can receive up to $900 in the Ontario Energy and Property Tax Credit, while seniors can claim a credit of up to $1,025.
Decoration tax deduction
In order to encourage owners to update and upgrade their houses and create an environment that consumes less energy and makes them more comfortable to live in, the government often launches some renovation tax credits from time to time. However, it should be noted that these benefits are usually limited-time and are not tax credits that can be enjoyed year-round.
Last year, Ontario launched a special “Healthy Homes Renovation Tax Credit”. The plan stipulates that if residents of this province modify their homes to make it easier for the elderly to live in, they can receive a personal income tax deduction for 15% of the modification costs.
Usually, eligible residents only need to keep the relevant renovation receipts to get the credit discount when filing taxes.
Moving expenses are also tax deductible
The average Canadian moves once every five years, and the expenses incurred when moving can sometimes be deducted from taxes.
Generally, if you move at least 40 kilometers away to start a new job, buy a new business, or attend a new school, you can deduct your moving expenses.
The moving expenses that can be reported generally include the following: travel expenses, such as reasonable meals, transportation and accommodation expenses incurred by family members moving to a new residence; storage fees; temporary board and lodging expenses (up to 15 days); penalties for canceling the lease; Costs of selling the old residence; attorney fees, etc. In addition, mortgage interest, property taxes and insurance during the vacancy period before the old residence is sold can also be deducted, with a maximum limit of 5,000 yuan. If your employer reimburses you for part of your moving expenses, you must report that portion of the reimbursement to your income and then deduct the entire moving expenses.