Tag: land transfer tax
As it is Valentine’s Day, our discussion today will consider, naturally, love and affection.
Real property can be gifted to loved ones. If there is no consideration of monetary value, then there will be no Land Transfer Tax payable on the transaction. In the Land Transfer Tax Affidavit, which must be filed when any transfer is registered in Ontario, the transfer is said to be for “natural love and affection”.
Although not specifically exempt from taxes, a transfer for “natural love and affection” is considered to be a transfer for nil value, and therefore, no Land Transfer Tax is payable.
“Love”, as most poets know, is hard to define. There is no definition in the tax legislation. Further, it is not clear what “unnatural” love or affection is.
In certain cases, gifts to non-arms’ length parties may also not attract Land Transfer Tax. For example, a gift to a charity may not be subject to Land Transfer Tax.
If the gift includes the assumption of a mortgage or other liabilities by the receiver, then the value of the mortgage or liability assumed by the receiver is of value to the donor, and must, in most cases, be included in the Land Transfer Tax Affidavit. Land Transfer Tax will be payable on the value of the mortgage or liability assumed. I say “in most cases” because there is an exemption where the transfer is between spouses or former spouses: see R.R.O. 1990, Regulation 696.
Further, if the receiver is not a spouse and the land was subject to a mortgage that was paid off by the receiver, Land Transfer Tax will be payable on the value of the mortgage paid off.
When gifting real property, keep in mind that while Land Transfer Tax may not be payable, this does not mean that income taxes are not payable. In many cases, the gift will trigger a deemed capital gain on the part of the donor.
For more information, see the Ontario Ministry of Finance bulletin, here, and the Government of Ontario publication, “A Guide for Real Estate Practitioners: Land Transfer Tax and the Registration of Conveyances of Land in Ontario”, here.
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Proposed Changes to the Land Transfer Tax Act
The Ontario government introduced Bill 70, Building Ontario Up for Everyone Act (Budget Measures), 2016 (“Bill 70”) for first reading on November 16, 2016. It is currently in its second reading. Bill 70 is an omnibus act that includes significant changes to the Land Transfer Tax Act (LTTA). This change applies only to the Ontario legislation, and does not affect Toronto’s Municipal Land Transfer Tax by-law, which imposes a tax on Toronto transfers in addition to the Ontario land transfer tax.
Once passed, Bill 70 will change the Land Transfer Tax (LTT) rates for commercial property transactions after January 1, 2017 for property exceeding the value of $400,000. The increased rate will not apply to single family homes. Bill 70 does include a grandfathering clause, so the new rates will not apply to agreements of purchase and sale made before November 14, 2016.
Will these changes affect estate administration?
Most simple estates, which may include properties such as a family home or a cottage, will remain unaffected by these changes. Estates with commercial properties may be affected by the increased rates.
Not all transfers of estate property attract LTT. If the real property is gifted directly to one or more beneficiaries under the terms of a will, then no land transfer tax is payable under the LTTA. Likewise, if real property is transferred to a beneficiary to satisfy an interest on an intestacy, no tax is paid pursuant to the LTTA. It is important to note that whether or not land transfer tax is payable under the LTTA, a Land Transfer Tax Affidavit must be completed.
If real property is sold to a third party for the purpose of paying debts or distributing the proceeds between one or more beneficiaries, land transfer tax must be paid under the LTTA. After January 1, 2017, the value of commercial real property over $400,000 will be taxed at 2%, up from 1.5%. If the estate is in a position to close a commercial property transaction before the year end, it may possible to avoid this rate increase.
You can read the proposed changes to the LTTA and to check on the status of Bill 70 at the Legislative Assembly of Ontario website.
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