Burden of land transfer tax on home buyers


by Peter Squire
It’s high time to make changes to the provincial land transfer tax. Did you know that if the price of a Honda Civic had risen at the same rate as the land transfer tax since it was introduced in 1987, you would have to shell out $117,300 to buy a Civic this year? To fill it up with gas, you would pay $5.51 per litre. The minimum wage would be $55 an hour, so if you did own a car or rented one, you would at least have more money to pay for that gas.
It did not start out this way. In fact, the original intent when the provincial government brought in this tax on buying a home was to be revenue neutral. It was to help offset the cost of running the land titles operations. The government of the day was sensitive, especially to those Manitobans of more modest means. There was an exemption from $0 to $30,000 and the next tax rate was 0.5 per cent for the next $60,000. With an average priced home selling in 1987 for a little over $80,000, this tax, while unwelcome, was not much different from what home buyers had been paying under the old system. 
It is an entirely different story this year. While Manitoba still has some of the most affordable homes in the country, prices have gone up.  A recently-released BMO first-time home buyers’ poll shows that the average first-time home buyer purchase price in Manitoba is $259,397, which is only higher in New Brunswick and Nova Scotia among Canada’s 10 provinces.
Nevertheless, 76 per cent of single-family home sales this March through WinnipegREALTORS® MLS®, sold for over $200,000, which is the price point where the highest land transfer tax rate in the country kicks in. For every dollar amount above $200,000, you pay a land transfer tax rate of two per cent. So for each additional $50,000, you pay another $1,000 in land transfer taxes before taking title to your new home. 
As you can appreciate, in short order this tax at higher prices takes a real bite out of your home purchase budget. For first-time buyers, in particular, it may mean the high closing cost obligation of paying $2,650 in land transfer taxes for a $250,000 home is too much for them to afford. 
In a survey of our REALTORS® this year on whether they are finding it more difficult to find a home that first-time buyers can afford, over 90 per cent agreed to some degree that this is now a reality. The significant drop off in sales activity in March was far more pronounced in in the first-time buyer market price ranges than in the upper ones. The highest price range of $500,000 or more actually performed better this March than in March 2012.
The provincial government is well aware of the long-standing concerns of WinnipegREALTORS®, and our warnings that the runaway tax is now revenue positive in its growth. In the 2011-12 budget, land transfer tax revenue went up 14 per cent to $67.3 million. 
What the government fails to realize is that this tax discourages home buying activity and can impact it directly. Why then are they content to let it remain this way? 
This revenue source is not sustainable if the first-time buyer market softens, as it has a ripple effect throughout the entire market and economy. First-time buyers enable owners of the home they purchase to upgrade to a more expensive house — the cycle follows all the way up the housing ladder. For every house sale, there is $40,000 in ancillary expenditures such as renovations, home furnishings, appliances, professional fees, etc.
The federal government recognizes the importance of first-time buyers by offering them a $750 tax credit. Sadly, in the four short years the tax credit has been in place, Manitoba’s land transfer tax for an average priced home has increased over $1,000. 
It is robbing Peter to pay Paul with no one winning. Potential home buyers are kept as renters. With more encouragement through tax relief, highly-coveted affordable rental units could be freed up for those Manitobans unable to, or not interested in, buying a home at this time.
As a result, Manitobans are negatively impacted by high land transfer taxes. 
When the provincial government says it is instead choosing to offer homeowners an education property tax credit, it is disingenuous because renters also receive the same education tax credit. Second, the education property tax credit was brought in for the purpose of helping reduce Manitoba’s heavy reliance on property owners funding our education system, not to reward those able to afford a home so that they can get an education property tax credit that they already receive when they rent.  
It is time the provincial government stops punishing Manitoba homebuyers!
(Peter Squire is the WinnipegREALTORS® market analyst.)