The City of Toronto’s Land Transfer Tax is no longer a “new” tax, but few have forgotten about its presence as it lurks over homebuyers’ heads.
Bill Johnston is the president of the Toronto Real Estate Board, and he recently put his thoughts and insights on the tax down on paper…
These are interesting times at Toronto City Hall. Last fall’s election brought a new mayor and numerous new councillors, and they are promising to take the City in a new direction. In this regard, one of Mayor Ford’s most significant promises to repeal the Toronto Land Transfer Tax (LTT), an unfair tax that Realtors have fought against since it was first proposed. We continue to oppose this tax and we look forward to working with Mayor Ford to eliminate it.
Realtors were again hard at work on this issue recently, making our views known as part of the City’s 2011 Budget process. In a deputation to the City of Toronto’s Budget Committee, the Toronto Real Estate Board (TREB) told city councillors that Realtors are encouraged with the direction of the City’s proposed 2011 Budget and believe that it is a significant step toward fulfilling Mayor Ford’s strong commitment to repeal the Toronto LTT.
By demonstrating restraint and prudent fiscal management, the City’s proposed budget sets the stage for City Council to deliver on Mayor For’s clear commitment to repeal the Toronto LTT by next year.
For years, GTA Realtors have been telling the City that the fair way for it to address its financial challenges is to get its finances in order, instead of burdening homeowners and homebuyers with additional taxes, like the LTT.
Realtors fought strongly against the idea of a Toronto LTT when it was first proposed in 2007. We heard the public’s concerns and we stood up for homebuyers, who we believe were being unfairly targeted by this tax. TREB’s efforts were strongly supported by the public, who also spoke out strongly against the LTT. The public spoke loudly then, but they spoke even louder last October when they gave Mayor Ford an overwhelming and clear mandate to repeal this unfair tax.
The City’s proposed 2011 Budget is an important step to delivering on the Mayor’s LTT mandate. In particular, it begins the process of addressing the City’s financial challenges with fair options, including cost-containment measures. Furthermore, it sets the stage for a forthcoming detailed program and service review, which Mayor Ford has announced will begin in March. This is an important process, and one that Realtors have been calling for.
For years, Toronto’s taxpayers have been bearing the burden of unsustainable City budgets. We believe that the proposed 2011 Budget stops the bleeding, and that by moving forward with Mayor Ford’s commitments, including repealing the LTT, next year’s budget will allow Toronto to flourish.
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So if I say that I also disagree with the City of Toronto’s ‘new’ Land Transfer Tax, will I automatically be disqualified from having an opinion since I am a Realtor?
Taxes are fact of life, and nobody likes paying them.
Nobody likes hearing about them, and nobody likes new taxes.
But “when” to tax and “where” to tax are issues that have plagued every politician throughout history.
If you ever really sat down and listed off every dollar we pay in tax, I’m willing to bet that out of $1.00 of income, we pay $0.75 of it in taxes. I’m not just talking about the big three taxes – income tax, sales tax, and property tax. I’m talking about all the stupid little BS taxes.
When I bought a printer through Dell, I was charged a “printer disposal fee,” since it is assumed that I am throwing away a printer in order to purchase a new one. But what if that was the first printer I ever bought? How would I go about proving that I should be exempt from this tax? More importantly – why are we paying such a stupid tax?
Dalton McGuinty is among the most creative tax enthusiasts we’ve ever seen, what with his new “eco fees” implemented last year that charge $4.03 for every can of paint and $0.12 per pill of every prescription filled.
Simply put: you can tax anything, anywhere, at any time.
Let’s come up with some ideas right now.
I’m sitting on my couch as I write this, looking around my condo.
How about a “TV tax,” since people buying so many new flat-screen TV’s? I’m not electrician, but I’m sure somewhere in that TV is some sort of “bulb” that is bad for the environment….or not. Regardless, let’s implement a $15.00 “TV tax” for every new television bought in Ontario.
Now that the world has Kindle’s, how about a “book tax” of $0.25 per book? I mean, gaaawsh, it’s like 2011 – get with it – nobody reads books anymore! Long live video games and reality television! Shame on those people who want to better themselves by reading – let’s tax that ass!
I just bought new stainless steel appliances last week. How come there was no tax on that? Some sort of “bulk disposal fee” of say $30 per item? Even though I sold the fridge, stove, and dishwasher to a guy on Craigslist, I would think the government would argue, “Well, with the subsequent purchase of new appliances, your old appliances WILL be disposed of at some point……so let’s have that $30 per piece, now.”
How about a tax for every child born into this world?
What about a tax for thoughts?
For air?
If it exists – tax it.
So where does it all end?
Or more specifically, what evaluation criteria does the municipal, provincial, or federal government use when contemplating a new tax?
The Toronto LTT was an awful idea, in my opinion, since the tax already existed in the form of the provincial tax. I’ve heard some people counter-argue, “There is sales tax on every item we buy – made up of provincial AND federal – so why can’t we have two taxes on other items as well, like real estate?”
Well, I suppose that’s true, if you like double taxation…
But I’m not sure what David Miller was thinking when he implemented the double Land Transfer Tax, since he was effectively trying to kill the goose that laid the golden egg.
With the average price of a Toronto home around $454,000 in February of 2011, that means the average home buyer will pay over $10,000 in land transfer tax – or DOUBLE what they would have paid before the Toronto LTT was implemented.
Why make the cost of buying a home so prohibitive?
In 2008, the year of our dear double land transfer tax, a study by Altus Clayton revealed determined that every re-sale housing transaction in Ontario generates approximately $33,425 in economic spin-off activity on things like renovations, furniture, and appliances.
Making it difficult and expensive to purchase a home in Toronto will only serve to hurt our economy as a whole. Didn’t Mr. Miller think of this?
Every action has a reaction, and the Toronto land transfer tax is arbitrary and costly.
I voted for Rob Ford, not just because he looks like the kinda guy that enjoys chicken wings and football, but because he recognizes that double taxation is unfair to taxpayers, and ultimately the short term benefit to the tax pool could pale in comparison to the long term detriment to the economy.
Oh – and I hate the idea of an above ground LRT, or any more streetcars, but that’s a topic for another day…
johnny chase
at 8:52 am
Dave – they already tax tv’s. Just like the printer.
dave
at 9:10 am
Everyone always thinks that it should be someone else who shoulders the tax burden.
The unpleasant reality is we are substantially undertaxed in Canada, as in most of the western world. Gov’ts are putting out much, much more than they can sustainably afford. It’s been feasible only because of the low cost of servicing our debts in recent years.
Simply put, we’d all better get ready for higher taxes. And yes, it will damage our economy. In the same way that spending tomorrow’s money yesterday has benefited our economy.
With respect to the LTT, it seems to me that over the cost of 10 yrs of ownership, the LTT is a small fraction of the total costs of ownership (transaction costs, property taxes, maintenance costs).
But in fairness, I don’t make my living selling real estate in the way that Mr.Johnston does, so I have a different perspective.
Spose
at 10:51 am
David,
I totally agree with you. I’m glad you cited that economic spin-off activity statistic. This city -with its rapid condo development & huge inventory -thrives off of new homeowner spending. Housing here is expensive enough such that the idea that a dual-income professional couple (i.e. not millionaires) trading up from their $350k condo to a modest $550k house (so they can raise a family) would have to cut a cheque to the government for $10-12,000 for the privilege is ridiculous. I get that the fiscally irresponsible government wants to get a bigger cut of all the money homeowners have been making from a strong housing market but its just too much (made obvious by the fact that it was a huge contentious election issue and is set to be repealed by Ford -clearly whoever implemented the double-tax overshot).
I wonder if the market were to soften a bit, would we see buyers asking sellers to pay the land transfer? Just because I believe that my ‘fictional’ dual-income couple will be rolling the proceeds of their condo sale into the new, larger mortgage, and will have to save up for closing costs & moving costs and that $12k cheque to the gov’t may be just too much of a nut to swallow…
Joe Q.
at 10:58 am
I think the “printer disposal fee” is to cover the cost of disposing of the printer you’ve just bought, not the one you’re replacing.
Printers aside, I’ve been following Ford’s career since his early days on Council and while it has always been clear that he works hard for his constituents and is very cost-conscious, there was also a pattern of poor judgement, a needlessly confrontational attitude and a sometimes-simplistic approach to municipal issues. So after looking at his career in the 2000s I couldn’t support him in 2010.
For me, a look at Ford’s mayoralty to date confirms my earlier opinion of him.
I know that the RE community in general strongly supported Ford, and I don’t know enough about the land-transfer tax to have a strong opinion on it, but from my naive perspective as a buyer, its impact in increasing the cost of homes was minor relative to that caused by other government policies.
My two cents.
Anon
at 11:31 am
Actually, the printer disposal fee is for the eventual disposal of the printer you are currently buying. And eco fees make sense: paint, pills, etc. are potentially hazardous, and cost more to dispose of safely than your usual household garbage.
You can complain about the extra LTT if you like, but this is more than offset by the capital gain on a primary residence not being taxable. Imagine if everyone selling a house today had to pay back 20 to 40% of the increase in the house’s value since they moved in?
David Fleming
at 12:17 pm
@ Dave
The point you brought up – “the cost of 10 yrs of ownership the LTT is a small fraction of the total costs of ownership” is exactly the point I’m trying to make.
What if you want to move after two years? Or 18 months? The LTT makes moving prohibitive unless you’re in your property for 10 years.
Most homeowners aren’t in their houses for ten years.
Families and retirees may be in their properties for ten years, but I would estimate that 95% of buyers under 35 years old will be in their properties for less than ten years.
And when you consider that more than half of all residents living in the GTA are in condos, you start to realize how quickly people outgrow their spaces, and how important it is to avoid making the cost of moving prohibitive.
Kyle
at 12:58 pm
Other than raise revenue, this tax accomplished none of the things that Miller claims to stand for – help the poor, reduce traffic, make Toronto more liveable. This “progressive tax” actually turned Toronto into a more polarized city where only the rich can afford to own a decent house close to amenities. Pushing the poor further out into ghettos, away from public transportation, schools and shopping. As for the middle class, they’re saving the Miller premium, by moving to the 905’s and driving to work. So now our city is made up of pockets of rich owners, and poor renters, and middle class commuters stuck on the highway.
David Fleming
at 2:20 pm
@ Kyle
Very well said!
Best comment yet, and not just because it was anti-Miller… 🙂
dave
at 2:55 pm
???…”Pockets of rich owners, and poor renters”
Kyle, can you provide any basis for your statements?
Isn’t home ownership at an alltime high?
Haven’t RE prices doubled in real terms over the past 10 years?
Aren’t mortgage rates at historical lows?
Haven’t 100,000 condos been built in the 416 in the last 10 years, mostly purchased locally?
Hasn’t the 416 market continued on like gangbusters since the LTT came into effect?
In the interests of full disclosure, I’m a housing bear who thinks that we have a bubble ready for a 25% correction over the next 5 years. But I really don’t see the downside to the LTT. If you can afford to buy more than once every 10 years, and you are beyond the $400k rebate level, then I think you’re the ones who should be paying more taxes. Sorry. And I really don’t see how it has harmed the 416 market in the slightest.
Krupo
at 4:06 pm
As noted above, that “TV tax,” for those display screens, similar to the paint tax you mentioned. And if your TV is greater than 30″ it is a bigger tax too.
What’s worse, in the UK you have to pay a yearly tax for having a TV too (subsidizing the BBC, etc).
Kyle
at 5:07 pm
@ dave
http://www.urbancentre.utoronto.ca/pdfs/researchbulletins/CUCSRB41_Hulchanski_Three_Cities_Toronto.pdf
Of course the shift described in the study above isn’t entirely due to the LTT, but the trend has only accelerated in the last few years.
“If you can afford to buy more than once every 10 years, and you are beyond the $400k rebate level, then I think youâ??re the ones who should be paying more taxes”
…Or as the middle class has chosen to do, you can avoid more taxes and buy in the 905 clog our highways.
Potato
at 9:09 pm
I think the LTT was one of the best taxes introduced recently. It’s one-time, so it just gets factored into the price of real estate, and it was introduced at a time when RE was going up ~10%/year anyway, so the 1-2% hit from the tax was hardly noticed, just lost in the noise. It’s hard to evade (very much unlike the vehicle registration surtax), and the effect on behaviour is to dampen speculation and flipping, which most except TREB would argue represents a social good — leading to more stable neighbourhoods, and helping to dampen the speculative premium that makes Toronto such an expensive place to live.
I agree with dave (#2&9): it hasn’t harmed the market in the slightest, it doesn’t affect first-time buyers thanks to the rebate, it’s reasonable in magnitude (about as much as 1-2 years’ worth of property taxes, on par with the PLTT, and much less than other closing costs) and since it’s applied on the buy side, it also doesn’t affect people’s ability to get out of their property if they have to sell after a short time period (unlike other closing costs).
xxx
at 9:53 pm
brilliant post, potato. Im reflexively against taxes, but i agree that the LTT doesnt harm stable homeowners like myself. My wife and I have decided to go old school: Buy a house we can afford now, in our mid thirties, and live here till we die. Our house is a small bungalow in east york(2 bedroom). When we have kids, space will be at a premium, but we will get through it the way generations of people did before we were told we needed “modest” 500K+ homes, granite countertops and stainless steel appliances.
We were exempt from the land transfer tax as 1st time home buyers. The only time it will ever affect us is if we choose to invest in an income property. If we are in a position to do so, the relatively small hit of the toronto LTT will be something we can afford.
Of course I agree with David that the economic engine the real estate industry has become in toronto is something that can have serious collateral damage if tampered with too much.
Ryan
at 12:14 pm
Double taxation is a tax on a tax, not two authorities taxing the same thing. There is a kind of double taxation in Real Estate purchases though.
For example, an Agent’s fees are baked into the purchase price, which is the price used to calculate LTT. Sure, Agent’s fees aren’t technically a tax…but if agent fees were paid outside of the purchase price, that would lower the LTT paid by everyone. Further, the government collects HST on agent’s fees, the HST is also in the purchase price, which is then taxed on LTT.