Making sense of real estate taxes in Canada

Real estate has historically kept up with inflation. But I’m not sure if it can keep up with taxation moving forward.
I’m all for reasonable taxes. I benefit a lot from government services.
But at some point real estate taxes in Canada can start to feel excessive.

Someone buying a house in Vancouver BC today could pay up to 9 different kinds of taxes.

Doesn’t that seem more complicated than it needs to be?

Nevertheless, it’s important to know the tax implications of any real estate decision you make. So in today’s post I’ll explain all the taxes you have to consider before purchasing real estate in Canada.

Nationwide

Capital gains tax
If you sell a property for a capital gain, you will pay a capital gains tax. You can fill out a Schedule 3 – Capital Gains (or Losses) form. The capital gains inclusion rate is currently 50%. You are exempt from this tax if your property was only used as your principal residence, meaning you could not have rented out even a portion of it at any time.

Non residents also have to pay capital gains tax in Canada. The amount is 25% of the profit / capital gain realized on the sale.
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Who pays this tax: Real estate investors, foreigners and home owners who have rented out their property.

Property tax (local)
This is an annual tax paid to the local government. The proceeds pay for city services such as police, public transit, schools, roads, and public utilities. The property tax rate depends on where you live. The closer to a city center the lower the rate as a percentage of the property’s value.
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Who pays this tax: Everyone.

Vacancy tax (Federal)
Starting January 2022, the Federal government plans to charge 1% tax on the value of non-resident, non-Canadian owned residential real estate that is considered vacant or underused.
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Who pays this tax: Foreigners.

GST or HST
If you buy or build a new home, you need to pay the federal goods and services tax (GST) on the purchase price, or the harmonized sales tax (HST), depending on where you live. Rebates for this tax are available depending on your situation.

• Tax rates:
• 5%  (GST) in Alberta, BC, Manitoba, NW Territories, Nunavut, Quebec, Saskatchewan, and Yukon.
• 13% (HST) in Ontario.
• 15% HST in New Brunswick, Newfoundland and Labrador, Nova Scotia, and PEI.

Who pays this tax: Everyone buying new property.

Provincial

General land transfer taxes
When you acquire a property, you must pay a tax to the government after the transaction closes. This should be budgeted into your closing costs. The amount paid depends on the value of your property.

Breaking down the provincial / local real estate taxes

British Columbia (5 potential taxes)

Property transfer tax (PTT)
You pay this land transfer tax whenever you buy a property in B.C. This was enacted in 1987 as a temporary measure to help balance the provincial budget. But it stuck around. As the famous economist Milton Friedman once said, “nothing is so permanent as a temporary government program.”

• Tax rates:
• 1% of the value up to and including $200,000.
• 2% of the value greater than $200,000 and up to $2,000,000.
• 3% of the value from $2,000,000 to $3,000,000.
• 5% of the value over $3,000,000.

B.C. offers a tax refund if you are a permanent resident or citizen and have never owned a property before. It is called the first time home buyers’ program. This tax refund will only cover properties worth $500,000 or less.

Who pays this tax: Everyone except first time home buyers.

Foreign-buyers Tax
For a foreign national or corporation, a 20% additional tax on the purchase price is paid whenever you buy property in the following regions of the province:

• Capital Regional District
• Fraser Valley Regional District
• Metro Vancouver Regional District
• Regional District of Central Okanagan
• Regional District of Nanaimo

Who pays this tax: Foreigners

Speculation and vacancy tax
Residential properties in large urban centers are subject to this annual tax.

2% for foreign owners and satellite families.
0.5% for Canadian citizens or permanent residents who are not members of a satellite family.

You can be exempt from this tax if it is your principal residence or if you have it rented at least 6 months out of the year. But you have to fill out declaration form every year to claim the exemption.

Who pays this tax: House flippers, speculators, foreign owners, and satellite families.

Empty homes tax – Vancouver municipality

If your property is empty or is only lived in some of the time, and it is located in the city of Vancouver, then it may be subject to a 1.25% tax based on its fair market value. You would pay this levy every year.

Who pays this tax: Owners with empty Vancouver homes for more than 6 months of the year.

Additional school tax

This tax applies to homes worth more than $3 million. The value is determined by the provincial government. It’s basically a wealth tax specifically on real estate assets.

• Tax rates:
• 0.2% on a residential property assessed between $3 million and $4 million.
• 0.4% on any portion over $4 million.

Who pays this tax: Owners of any property that is worth over $3 million.

Ontario (3 potential taxes)

Land transfer tax – Provincial
You pay this tax one time when you purchase a property in Ontario.

• Tax rates:
• 0.5% of the value up to and including $55,000.
• 1.0% of the value from $55,000 to $250,000.
• 1.5% of the value from $250,000 to $400,000.
• 2.0% of the value from $400,000 to $2,000,000.
• 2.5% of the value over $2,000,000

ON offers a tax refund of up to $4,000 for first-time home buyers.

Who pays this tax: Anyone who buys property in the province.

Land transfer tax – Municipal (Toronto)
You pay this tax one time when you purchase a property in Toronto, on top of the provincial land transfer tax.

• Tax rates: $81 fee + HST for administration fee. Plus…
• 0.5% of the property’s value up to and including $55,000.
• 1.0% of the value from $55,000 to $250,000.
• 1.5% of the value from $250,000 to $400,000.
• 2.0% of the value from $400,000 to $2,000,000.
• 2.5% of the value over $2,000,000

Toronto offers a tax refund of up to $4,475 for first-time home buyers.

Who pays this tax: Anyone who buys property in the city of Toronto.

Non‑Resident Speculation Tax
You pay this 15% tax when buying a property if you are not a citizen or permanent resident of Canada. This tax only applies to the Greater Golden Horseshoe Region.

Who pays this tax: Foreigners pay this NRST.

Alberta

Property transfer and mortgage registration fees
There are no property transfer taxes per se in AB. But there is a small fee for buying a property.
There is also a mortgage fee if one is used to purchase a home.

Rates:
Property value: $50, plus $2.00 for every $5,000 of property value.
Mortgage component: $50, plus $1.50 for every $5,000 of mortgage.

To put this into context, purchasing a $400,000 property in Alberta with a 20% down payment would cost about $360 in total fees.

Who pays this tax: Everyone.

Saskatchewan

Property transfer and mortgage registration fees
Similar to Alberta, Saskatchewan charges fees instead of a standard land transfer tax.

Rates:
Property value: $25, plus 0.30% of property value over $8,400.
Mortgage component: $160 for the registration of a new mortgage.

For context purchasing a $400,000 property in SK with a mortgage would cost about $1,360 in total fees.

Who pays this tax: Everyone.

Manitoba

Land transfer tax
This tax is paid for anyone purchasing property in the province.

• Tax rates: $70 fee + the following…
• 0.0% of the property’s value up to and including $30,000.
• 0.5% of the value from $30,000 to $90,000.
• 1.0% of the value from $90,000 to $150,000.
• 1.5% of the value from $150,000 to $200,000.
• 2.0% of the value over $200,000.

This means purchasing a $400,000 property in Manitoba would cost $5,720 in land transfer tax.

Who pays this tax: Everyone.

Quebec

Welcome Tax – Provincial
A land transfer tax you pay to the province.

If the property is outside of Montreal.

• Tax rates:
• 0.5% of the value up to and including $50,900.
• 1.0% of the value from $50,900 to $254,400.
• 1.5% of the value from $254,400 to $505,200.
• 3.0% of the value over $505,200.

If the property is inside of Montreal.

• Tax rates:
• 0.5% of the value up to and including $51,700.
• 1.0% of the value from $51,700 to $258,600.
• 1.5% of the value from $258,600 to $517,100.
• 2.0% of the value from $517,100 to $1,034,200.
• 3.0% of the value over $2,000,000.

This means purchasing a $600,000 property in Montreal QC would cost $7,863 in land transfer tax.

Who pays this tax: Everyone.

Putting things into context

Most people don’t have to pay all of the taxes above. But it’s important to know which ones affect you. Let’s look at an example case below:

Buying and selling on the west coast

Let’s say you don’t live in Canada but want to buy a $1 million vacation home in Vancouver.

You keep it empty most of the time. And sell it in the future for $1.5 million. Sounds great!

But before you take your $500,000 profit let’s break down the taxes you’ll have to pay.

• Foreign Buyer’s tax – $200,000. (This used to be labeled PTT, which was an error.)
• Capital gains tax – Up to $133,750.
• Property tax – $3,750 / year.
• Federal vacancy tax – $10,000 / year.
• GST – $50,000.
• Property transfer tax – $18,000.
• Speculation/vacancy tax – $20,000 / year.
• Empty homes tax – $12,500 / year.

That’s a total of $448,000 of taxes you have to pay to buy and sell a property in Vancouver. That’s almost all the profit, lol.

You’ll also be taxed $50,000 each additional year you hold onto the property after the first year. So you better hope the property’s value will grow by at least 5% a year to keep up with taxation.😂

After paying for real estate agent commission, conveyance, and lawyer fees, this investment may not even break even despite the 50% price appreciation.

Here are 3 lessons we can take away from this example:

1. The taxes are very prohibitive to buy real estate in Canada for foreigners.
2. Do not flip real estate for a quick profit. Keep it for at least 7+ years for a higher chance to appreciate and reduce the rate of transaction costs.
3. Despite what governments say about wanting more affordable housing, they actually love it when real estate prices rise. The more transactions that takes place, and the higher property prices go, the more money the government makes. That’s how they increase tax revenues without directly “raising” people’s taxes. Sneaky. 😉

An alternative to buying property directly

I wonder what new tax governments will add to real estate next.

Rather than investing in real estate directly, maybe it’s better for most people to just buy a REIT instead.

Note that all tax policies are subject to change. It’s a good idea to speak with a tax specialist before making any purchase decisions. 🙂

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Random Useless Fact:

According to Census Bureau data, 52% of millennials live in their parents’ home.