Whether or not land transfer tax applies in a transaction can be a very fact specific determination. In a “normal” purchase or sale where the seller is transferring their full interest in the property to the purchaser for consideration, land transfer tax usually applies. However, what happens in situations where you are adding or removing someone from title? The answer is not so simple.
Adding or removing a spouse from title may not trigger land transfer tax. The Land Transfer Tax Act (the “Act”) allows spouses to transfer between each other for “natural love and affection” when there is no money passing between the spouses or if the only consideration passing is the assumption of a mortgage. If one spouse is truly buying an interest in the property, however, there will be land transfer tax payable.
For land transfer tax purposes, a “spouse” includes two persons who are:
- legally married, or
- who are not married, and
- have cohabited for at least three years
- are in a relationship of some permanence, if they are the natural and adoptive parents of a child.
The Act also provides an exemption of land transfer tax for transfers between former spouses, in accordance with a written separation agreement wherein the parties have agreed to live separate and apart. In this circumstance, money can be paid to an ex-spouse as specified in the separation agreement without being required to pay land transfer tax.
Family and Friends
Transfers between family members and friends often trigger land transfer tax. When there is a mortgage on title, or where funds are being paid to acquire an interest in the property, there is no exemption for family transfers and land transfer tax will be required.
However, if there is no mortgage on title and the property is gifted to a friend or family member, land transfer tax will not be payable because the consideration for the transfer will be $0. Further, if a parent is put on title as a trustee in order for their child to qualify for a mortgage, the transfer can be done for $0, making the land transfer tax $0, as long as evidence of the trust relationship is submitted to the Ministry of Finance. It is important to fully explain your situation to your real estate lawyer so that they can determine whether land transfer tax is payable in your circumstances.
If you are acquiring property and land transfer tax is payable, you may be able to qualify for a rebate if you have never owned a home anywhere in the world. If you have a spouse who has owned a home while you were married, you will not be eligible. If you qualify, the amount of your rebate will be dependent on the portion of property you are obtaining and the purchase price; and should be discussed with your real estate lawyer. For more information on the first-time homebuyer rebate, please see my colleague Stephanie Simard’s blog.
The above examples do not provide an exhaustive list of the types of transfers that will not trigger land transfer tax. If you are looking for information on the land transfer tax implications when changing the legal tenure of your property, please see my last blog. There are also further exemptions for transferring family farmland, transfers between estates and beneficiaries, etc. which are beyond the scope of this blog. This blog also does not cover the complexities of trust scenarios.
Please note that depending on whether or not you live in the property, you may wish to speak with an accountant regarding any income tax implications when disposing of your interest in a property.