There has been much hoopla in the media recently since the provincial government announced it was increasing the rebate on land transfer tax for first time buyers. Almost all of the headlines read, "Provincial Government Gives $4,000 rebate of Land Transfer Tax to First Time Home Buyers". A lot of my fellow realtors jumped on the media bandwagon and proclaimed that this was fantastic, that this was really going to help first time buyers get into the market. Well, I believe this is just more smoke and mirrors from the provincial Liberals and it will have little if no effect on our Toronto housing market.
To be clear, there was already a $2,000 rebate available from the province for first time buyers. Finance Minister Charles Souza doubled it to $4,000 and that was the number the media picked up. The rebate only applies to the first $368,000 of the cost of a first time buyer's home. In Toronto, with the average price of a home at about $760,000, the current provincial land transfer tax, before the rebate if you're a first time buyer, is $11,675. Add on another $10,925 in municipal land transfer tax and it brings the total to $22,600.
The province is using an antiquated calculation system to levy land transfer taxes. Buyers pay 0.5 percent on the first $55,000 of their purchase, one per cent from $55,000 to $250,000, 1.5 per cent on anything from $250,000 to $400,000 and 2% on anything over $400,000. If the government wanted to really help home buyers, they would lower or get rid of the 2% tax on the purchase price over $400,000.
If you look at our average price of $760,000 in the city of Toronto, the tax alone on the purchase amount over $400,000 is $7,200!
Forgotten in the headlines and in most of the media coverage is the increase in land transfer tax from 2 per cent to 2.5 per cent for houses purchased for $2 million and more. So if you're fortunate enough to be able to purchase a home for more than $2 million, you get penalized even more.
Souza says they haven't made any adjustments to the land transfer tax calculation since 1989. Back then, $400,000 was a huge number in real estate markets. With increasing prices over the past 26 years, the provincial government is now reeling in more than $2 billion a year from land transfer taxes.
The city of Toronto jumped on the land transfer tax bandwagon in 2008. Since implementation, the city has averaged an annual revenue of about $300 million from the taxes.
With the combined revenue the city and province have been getting from the real estate market, our property taxes continue to go up every year and our services continue to decline. It makes me wonder how Toronto and Ontario would look today without the billions of dollars from real estate transfer taxes.
So Minister Souza, thanks for the additional rebate. You've just helped my first time buyer purchase a cheap appliance.