Change land transfer tax and give home buyers a break

WinnipegREALTORS® has sent letters to Manitoba’s 57 MLAs urging them to push for major changes to the land transfer tax (LTT) in the March 25 provincial budget, including an exemption from the tax for first-time home buyers. 

“I think it’s a good plan,” said Don Cook, the chair of WinnipegREALTORS® civic and legislative affairs committee. “The government should do the right thing. It’s time for the government to give home buyers a break.” 

He said home buyers have commented to him about being shocked when realizing there was an additional tax bill to be paid on a home purchase. 

Those who knew about the tax were surprised about how high it actually was when they saw their tax bill, he added.

Cook said the LTT is a tax upon a tax for first-time home buyers attempting to raise a down payment toward the purchase of a house.

“For first-time home buyers trying to save for a down payment,” he said, “it is a very, very difficult process and then they’re told they have to come up with the LTT, too.

“They’re already taxed on their income which are dollars needed for their down payment.”

The LTT means an additional cost of $1,650 to Manitobans who buy a home valued at $200,000, and another $1,000 if purchasing a $250,000 home.

According to the letter, before a buyer can make a home purchase, they must save for the down payment and disbursements, such as legal costs, as well as budget for mortgage insurance.

“First-time home buyers do not have built-up equity from an existing property to use toward a home purchase. First-time buyers must save money from their net income for a home purchase, which is difficult in today’s world.”

At present, Cook said the LTT tends to keep first-time home buyers out of the market due to rising home prices.

“There would be more people entering the housing market if they didn’t have to pay the roughly $2,000 to $3,000 in extra taxes,” added Cook.

Cook said WinnipegREALTORS® is calling for a “level playing field” in order to compete with other provinces for a skilled and educated workforce.

British Columbia, where 73 per cent of home purchases are for less than $500,000, recently raised its land transfer tax exemption for first-time buyers to $425,000. 

Alberta and Saskatchewan do not have an LTT.

Cook fears that unless changes are made, the skilled and educated workers Manitoba needs to advance its economy will pull up stakes and move to other provinces where the LTT is either less onerous or doesn’t exist.

In 2004, the Manitoba government increased the land transfer tax from 1.5 per cent to two per cent for homes in excess of $200,000, making it the highest tax of its type in Canada.

“The land transfer tax is a tax on the transfer of title,” according to the letter. “It is an upfront charge that home buyers pay as part of their disbursement, along with their down payments, before getting the keys to a newly-purchased home.”

WinnipegREALTORS® is also calling upon the provincial government to increase the lower-end threshold of the LTT, place a cap on the tax for upper-level home sales, and provide an exemption for affordable housing programs, such as the WinnipegREALTORS®-established Housing Opportunity Partnership, which allows moderate-income individuals and their families to purchase renovated homes in the city’s West End. There are a number of affordable housing programs operating in the city core and the North End, which, similar to HOP, have benefited from government funding.

Cook called the last proposed change “a no-brainer.”

“It’s silly for the government to give money for affordable housing programs and then take it back with the tax,” he added.

If the proposals are accepted by the provincial government, Cook said the $44 million raised annually by the government through the LTT would be quickly recouped through increased  homeownership.

A recent report by the Canadian Real Estate Association showed that every real estate purchase in Manitoba generated $40,000 in ancillary spending, such as on appliances and other household items which in turn generates provincial sales tax revenue.

By exempting first-time home buyers, they will not only have a greater ability to save for a down payment, but more money in their pockets to be used for household furniture, Cook added.

At present, the LTT does not apply to home sales between $0 and $30,000, but in the present market such sales are extremely rare.

When the tax first came into being, Cook said, a good home could be bought for less than $80,000, but now a similar home sells for above $150,000. 

This year, the average residential-detached price is $220,000.

According to a study by Will Dunning, the chief economist for the Canadian Association of Accredited Mortgage Professionals (CAMP), house prices rose in Manitoba by 97 per cent between 1997 and 2007, while the LTT rose a staggering 358 per cent, far in excess of any reasonable estimate to operate the land registry system administrating the LTT. Dunning said the province has realized a 44 per cent increase in revenue generated through the LTT since 2006.

“The taxes levied on land transfers are far in excess of any social or governmental ‘costs’ that result from the activity of home buying and therefore these discriminatory taxes are not justifiable,” said Dunning.

The present LTT is 0.5 per cent for the portion of the selling price between $30,000 and $90,000, one per cent for the portion between $90,000 and $150,000, 1.5 per cent for the portion between $150,000 and $200,000 and two per cent for a home valued above $200,000.

Besides the exemption for first-time home buyers, WinnipegREALTORS® is proposing the rates be lowered for other home buyers to 0.5 per cent for the first $100,000, one per cent for the next $100,000 and 1.5 per cent for the portion between $200,000 and $500,000.

The changes proposed by WinnipegREALTORS® are supported by the Manitoba Real Estate Association, CAMP and the Manitoba Home Builders’ Association.