Over the years, the provincial government’s message about the land transfer tax (LTT) has been misleading by inferring this is a tax common throughout the country and that Manitoba is in the middle of the pack when levying its LTT. The reality check is that Manitoba’s LTT is an unfair burden on home buyers.
In the 2011 provincial election, Premier Greg Selinger avoided doing any provincial land transfer tax comparisons. Instead, he said we should be content to receive annual education property tax credits. This statement assumes all Manitobans can afford to purchase a property, despite the requirement of a high upfront land transfer tax adding to the closing cost of a home purchase.
Where do we stand across the country?
Manitoba has the highest land transfer tax rate of two per cent which kicks in at the lowest threshold level of $200,000. Only B.C. is slightly higher, as it shares the same high rate at the same threshold level. At the $200,000 level, B.C. collects $2,000, while $1,650 is collected in Manitoba. Ontario also has a rate of two per cent, but it only applies to a house valued over $400,000. So with the exception of B.C., Manitoba is at the head of the pack.
What about the other provinces?
It’s true that land transfer taxes are part of the national tax regime, but at a far lesser amount than Manitoba. They are similar to what Manitoba’s LTT once was — akin to a user fee rather than a major tax on a home purchase. For example, Alberta and Saskatchewan do not even have what is referred to as land transfer tax, but do charge title transfer fees.
Saskatchewan’s ttile transfer tax is similar to a land transfer tax in that after $8,401, there is a charge of 0.3 per cent on the remaining value of the property. New Brunswick does call it a land transfer tax, but has a lower rate than Saskatchewan at 0.25 per cent of the value of a property purchased.
Prince Edward Island is similar to Manitoba. It has an exemption on any amount below $30,000, but afterwards charges one per cent on the remaining value of the home. In Newfoundland, the rate is 0.4 per cent, but it applies only to the mortgage amount and not the purchase price. Nova Scotia does not have a provincial land transfer tax, but there are municipal taxes, such as in Halifax County which charges 1.5 per cent on the total value of a property.
The Yukon Territory charges 25 cents for every $1,000 over $25,000 with minimal fees (e.g., $10.50 on $3,000 to $5,000) associated with the amount under $25,000. The Northwest Territories charges $1.50 for every $1,000 of property value with another $1 on every $5,000 of the mortgage amount. For a property valued greater than $1 million, the $1.50 charged on every $1,000 is reduced to $1.
Quebec’s rate is 0.5 per cent for the first $50,000, one per cent from $50,000 to $250,000, and 1.5 per cent for any value over $250,000. As earlier mentioned, Ontario does not apply the two per cent tax rate to any amount below $400,000. Its rate is 1.5 per cent from $250,000 to $400,000, one per cent from $55,000 to $250,000 and 0.5 per cent for the first $55,000. If you live in Toronto, you also must pay another land transfer tax. The rates and threshold levels are almost identical, with the exception that the one per cent versus the 1.5 per cent applies from $250,000 to $400,000.
Manitoba exempts the first $30,000 and then sets its rates as follows: on $30,001 to $90,000, a rate of 0.5 per cent is applied, then it is one per cent from $90,001 to $150,000, 1.5 per cent from 150,001 to $200,000 and two per cent on any amount over $200,000.
B.C.’s rate is one per cent for the first $200,000 and similar to Manitoba it charges a rate of two per cent over $200,000. It should be pointed out Manitoba also charges a title registration fee of $70 while B.C. does not.
Nunavut neither charges a title registration fee nor a land transfer tax. If you purchase a home in Nunavut, you keep everything in your pocket, including our Canadian penny.
With the average price of a home in the WinnipegREALTORS® current market reaching $280,000 and a number of neighbourhoods in the city exceeding $300,000, for comparative purposes, we have chosen the $300,000 amount to determine what you will pay in land transfer taxes and/or title transfer fees across the country.
• British Columbia — $4,000
• Alberta — $95
• Saskatchewan — $900
• Manitoba — $3,720
• Ontario (outside Toronto)— $2,975
• Ontario (Toronto) — $5,700
• Quebec — $3,000
• New Brunswick — $1,500
• Prince Edward Island — $3,000
• Nova Scotia (Halifax County) — $4,500
• Newfoundland — $1,298
• Yukon — $112
• Northwest Territories — $450
• Nunavut — $0
So at $300,000, we are in the upper tier of land transfer taxes in the country. B.C., Toronto and Halifax are higher, though the gap for Halifax narrows considerably at $400,000. Manitoba surpasses Halifax in land transfer taxes when a home is purchased for $470,000 or higher. Manitobans purchasing more expensive homes start to pay considerably more than Quebec and P.E.I., as their highest tax rates are lower at 1.5 per cent and one per cent, respectively.
What about first-time home buyer exemptions?
This again puts Manitoba at a significant disadvantage when making national comparisons. Manitoba has never offered a first-time home buyer exemption other than — similar to P.E.I. — for any amount below $30,000. It then charges a 0.5 per cent tax from $30,001 to $90,000. When this tax was introduced in 1987, it could certainly be viewed as giving a break to those buyers entering the market for the first time. But in 2012 this is no longer the case, as prices have increased significantly over the past 25 years. Most buyers, even many first-timers, are now being taxed at the rate of two per cent on a portion of the purchase price of their home.
It just so happens that the other two provinces with the highest land transfer tax rate of two per cent recognized some time ago that first-time buyers should get relief from this tax, since they do not have the benefit of building up equity as is the case with existing homeowners. An existing homeowner is in a much better financial position to come up with the necessary down payment and closing costs when buying their next home.
On the other hand, the cost of the land transfer tax in Manitoba can make a difference on whether or not a first-time buyer has enough money to purchase a home.
B.C. offers a full land transfer tax refund on homes purchased for $425,000 or less. In Ontario, they receive a maximum rebate of $2,000 and have to make up the difference on any house priced over $227,500. P.E.I. also exempts first-time buyers, if the property value and purchase price is below $200,000. The City of Toronto offers one for a maximum amount of $3,725.
For starters, Torontonians elected a mayor committed to repealing the city land transfer tax and the most recent Ipsos Reid poll in November 2011 showed 65 per cent support Mayor Rob Ford’s promise to scrap the tax. Even with consideration of other budget concerns and deficits, 57 per cent still said they want to repeal the tax.
During a candid CTV news interview this spring, B.C. Finance Minister Kevin Falcon acknowledged that after 25 years (Manitoba’s LTT has been in effect for the same period of time), it may be time to consider adjusting the thresholds upon which the rates apply.
“You know the thresholds have never been adjusted,” Falcon said, “so do I think that’s something in the future we need to take a look at to ensure that at least it applies to thresholds that are more realistic .”
Obviously, the minister is well aware of how much real estate prices have gone up with no adjustment to the thresholds established in 1987. The minister added that he may do something in B.C.’s budget next year to offer some relief to home buyers.
Meanwhile, Manitoba has not changed its threshold price levels at which the rates are applied. In fact, in 2004, the provincial government increased the highest tax rate of 1.5 per cent to two per cent for any amount over $200,000.
In a year or two, if Toronto repeals its land transfer tax and B.C. raises its thresholds well beyond the $200,000 to reflect today’s prices, Manitoba may well find itself at the top of the heap with bracket creep! This is quite possible as the government has made no commitment to soften the blow on Manitoba home buyers. On the other hand, the province is committed to achieving a balanced budget in 2014 and dealing with other important priorities, such as infrastructure and exempting seniors and farmers from school taxes over its current mandate.
It is true Manitoba’s real estate market has fared well despite the high land transfer tax, but this does not mean it is fair or that first-time buyers as well as move-up buyers are not being aversely affected. It also does not mean we can take our real estate advantage for granted. The local advantage will last if others around us are taking measures to be more responsive to the higher costs of homeownership.
The recent tightening of mortgage rules makes it tougher for first-time buyers to get into the housing market, so why won’t the government give consideration, as other provinces have already, to help Manitobans purchase their first home. A complementary benefit to the province would be freeing up rental units that are in short supply.
The land transfer tax has certainly gone well beyond what is initially intended. It’s now a cash grab.
Other provinces and territories do not want to penalize people for making an investment in the community by purchasing a home to raise their family. Even in those provinces where the land transfer tax is more onerous, they have at least made some concessions to those most in need of relief.
We hope the Manitoba government will include a cross-Canada comparison chart in its budget documents next year, showing how Manitoba fares when it comes to land transfer taxes. We also hope that in the not too distant future there’s a plan in place to provide relief to Manitoba home buyers from the onerous tax.