Details on Toronto's New Land Transfer Tax

I've had a number of clients already asking me for more details about the recently approved Land Transfer Tax for Toronto residents. Here are the details, courtesy for the City of Toronto's website.

The summary points:

• takes effect February 1, 2008
• If your agreement is prior to December 31, 2007, you receive a full rebate, regardless of closing date
• If you purchase after December 31, 2007 and close before February 1, 2008, you receive a full rebate
• If you purchase after December 31, 2007 and close on or after February 1, 2008, you pay the full tax.
• A rebate of up to $3,725 will apply to first-time purchasers for new and existing homes under $400,000.

Interestingly, I read in the paper recently that the City of Hamilton was also looking to implement something similar but it turns out that these extra taxing powers were only given to Toronto in the "City of Toronto Act" by the province.

So, at this time, it doesn't look like the surrounding municipalities or regions will be implementing anything like this anytime soon. I originally surmised that it wouldn't take long for the surrounding area governments to level the playing field and make their own similar tax grabs but it doesn't appear as though they have the power to do so at this time. And I haven't read so much as a tiny hint that that's about to change anytime soon.

How will it affect the real estate market?

That's anyone's guess. So I'll take a stab at it, too.
In the short term, I think that we'll see a flurry of home sales through the end of this year within the Toronto area. Then, in January, we'll see Toronto buyers looking for short closings to dodge the tax.

Then, in the longer term, that's a tougher call. Toronto has lower property taxes than most, if not all of its immediate neighbours. Toronto homes along the border may take a little longer to sell than homes just outside the border because of this tax. But since it's a one-time tax at the point of purchase, I don't think it's going to be a decision-breaker for many buyers.

I think it will be similar to the GST on new homes. Certain buyers prefer a *new* home and are willing to pay the GST in order to have it. I think the same thing will apply for Toronto homes. Ultimately buyers will be willing to take that extra tax-hit to live in Toronto.