Closing costs are the dirty little secret of real estate transactions. No one talks about them – but everyone pays them. Whether you’re purchasing Toronto real estate, Vancouver real estate, or London real estate, you’ll have to pay closing costs, but just how much you pay can vary dramatically from province to province.
Closing costs are a term used to describe the fees and levies that apply to a real estate transaction. There are dozens of closing costs to consider when buying a home, but the biggest ones by far are taxes.
There are several different types of taxes that may apply to your home purchase, and they vary considerably depending on where you live and how expensive your home purchase is. Let’s take a look at a few of the most common real estate taxes and fees and how they differ from market to market.
Land Transfer Tax
A land transfer tax (LTT) is a fee you have to pay to your province when you buy a home, and is usually a percentage of the home’s selling price, except in Alberta and Saskatchewan where you have to pay a small transfer fee instead. Each province has a specific LTT rate, and in many of provinces, you pay a different rate depending on your home’s purchase price. Land transfer taxes vary from province to province and can be as low as a base fee of $50 plus $1 for every $5,000 in home value like in Alberta, or as high as 3.0% of the purchase price, which is the case for homes in British Columbia valued at over $2,000,000.
Some municipalities also levy an additional land transfer tax on top of the provincial tax, such as Toronto, which charges between 0.5% – 2.0% depending on the value of the property. Don’t forget; you’ll need to pay this land transfer tax in addition to – not instead of – the provincial land transfer tax.
If you’re a first-time homebuyer, you may be eligible for land transfer tax rebates if you live in the provinces of Ontario, British Columbia, and the city of Toronto. The rebate may cover some or all of the land transfer tax.
Harmonized Sales Tax (HST)
Most people know that they’ll have to pay land transfer tax on the purchase of their home, but what about HST? Many homebuyers forget about HST because it doesn’t apply to all sales. In fact, the Canada Revenue Agency exempts all ‘used property’ from HST, which means property that has been previously occupied. That means the HST exemption applies most real estate transactions except new homes. You’ll have to pay HST on a new home, and that includes condos.
Fortunately, there is an HST rebate form you can apply for to recover some of this cost if your home is priced up to $500,000.
Beyond land transfer tax and HST on new home sales, you’ll also need to consider property taxes. Property taxes are fees charged by the municipality you live in and pay for services such as garbage removal, road maintenance, and recycling collection. Property taxes are assessed yearly based on a property assessment and can vary from city to city. The rate is usually somewhere between 0.5% and 2.5%. While this may seem like a fee that does not vary much from province to province, keep in mind that many real estate markets are regional. 2.0% of the average home price in Saint John, New Brunswick will be much, much less than 2.0% of the average home price in Toronto, Ontario.
Many people consider property taxes to be an annual expense and not a closing cost. While it’s true that you typically pay property taxes annually, if you are purchasing a home where the homeowner has prepaid their property taxes, you’ll be responsible for reimbursing them for part of the year. If you are purchasing an expensive home with a high property tax assessment and rate, you may be on the hook for thousands of dollars.