By Penelope Graham, Zoocasa
Special to the Financial Independence Hub
It’s no secret the Toronto real estate market is one of Canada’s toughest: scant supply and spiralling prices make it exceedingly difficult for first timers to break in.
However, given the average detached house price has surpassed $1.3 million, according to the Toronto Real Estate Board, it can be even more challenging for buyers needing an upgrade – and a recent City Hall proposal threatens to make it even costlier to move up in the market.
The City of Toronto’s Executive Committee has been mulling over hiking the land transfer taxation rate for the portion of homes valued between $250,000 to $400,000 to 1.5%: a 0.5% increase. The move would effectively “harmonize” the municipal tax rate with the province of Ontario’s, and raise $77 million for the city’s beleaguered budget. It would also equate to a $750 increase on top of the $11,000 already paid in Land Transfer Taxes to City Hall. Enough is enough, argues the Toronto Real Estate Board (TREB).
Double the tax in Toronto
A not-so-fun fact: Toronto is the only city in Canada where buyers pay a municipal Land Transfer Tax in addition to the one charged by the province. Referred to as MLTT, the tax was first implemented in 2008 in efforts to pad the municipal budget; due to provincial restrictions, Toronto cannot tax income, sales, or institutions such as hospitals or schools. That leaves homeowners picking up the tab, despite already paying some of the highest housing costs in the nation. By contrast, buyers outside the city proper pay only a few thousand in provincial taxes, while there is no tax at all in Saskatchewan and Alberta housing markets.
Fierce opposition to Homeowner costs
TREB is a longstanding critic of the double tax, and has been vehemently opposed to raising it further, arguing that the city should be doing more to help – and not hinder – home buyer affordability.
“These proposed changes would mean the city’s budget relies even more heavily on a revenue source that has already been criticized by the City manager for being unpredictable and unreliable,” stated TREB Chief of Communications and Government Affairs Officer Von Palmer. “City Hall should be focused on marking home ownership in this great city more affordable, not less; and should be relying less om this tax, not more.”
First-time buyers initially targeted
However, it could have been worse, as the city initially considered coming after first-time buyers, yanking their LTT rebate and increasingly costs by an average of $450. TREB aggressively lobbied against the hike, arguing it would effectively offset all gains first time buyers received from the province’s doubling of the LTT rebate to $4,000 to $2,000. The real estate board even launched the awareness campaign anotherobstacle.ca, and gathered Torontonian sentiment; they found 59% of city residents opposed using LTT to support the municipal budget, and 58% directly opposed increasing the taxation threshold by 0.5%.
The measures appear to have worked: City Council announced January 25 that there would be no taxation change for the first-time buyer segment.
However, even as TREB cheered the decision, it had sharp criticisms for the city.
“We are glad that the Budget Committee has addressed some of the concerns that home buyers have with these proposals, but City Council needs to go further. A proposal to hike the Land Transfer Tax by $750, or 7%, is still on the tale,” stated Palmer. “City Hall’s take from this tax has increased 200% since 2008, from $3,725 to over $11,000 on an average priced property. Hasn’t City Hall already taken enough from home buyers?”
Penelope Graham is the Managing Editor of Zoocasa.com, a leading real estate resource that uses full brokerage service and online tools to empower Canadians to buy or sell their home faster, easier, and more successfully.