Understanding Property Taxes in Ontario

Wondering how much property tax is in Ontario? 

Ontario municipalities determine property taxes by applying their set tax rates to the property's assessed value. Here’s how it works:

Property Assessment

Every four years, the Municipal Property Assessment Corporation (MPAC) calculates the value of all properties in Ontario. MPAC uses various factors to determine the assessed value, including:

• Location of the property
• Lot dimensions
• Living area (square footage)
• Age of the property
• Condition of the property
• The latest sale prices of comparable properties in the area

Municipal Tax Rates

Each Ontario municipality sets its tax rates through its annual budget. These tax rates fund municipal services such as road maintenance, public safety, and community services. There are generally three components to the tax rate:

• Municipal tax rate: Set by the local municipal government to fund municipal services.
• Education tax rate: Set by the provincial government to fund public education.
• Special area rates: Additional rates may apply for specific services or improvements within a municipality.

Applying the Tax Rate to the Assessed Value

The tax rate works in "mills," where one mill equals $1 of tax on every $1,000 of assessed value. For example, if the combined tax rate (municipal + education) is 1.2%, the calculation would be:

• Assessed property value: $500,000
• Combined tax rate: 1.2% 
• Property tax calculation: $500,000 × 0.012 = $6,000

Property tax assessed at $500,000 with a combined tax rate of 1.2% is $6,000 annually.

Adjustments and Rebates

Property owners may be eligible for adjustments or rebates, which may include:

• Vacancy rebates: For commercial and industrial properties that have been vacant for a certain period.
• Charitable rebates: For properties occupied by eligible charities.
• Senior and low-income rebates: Some municipalities offer rebates or deferrals for seniors or low-income homeowners.

Tax Bills and Payments

Municipalities send out property tax bills semi-annually or quarterly. Depending on the municipality's payment options, property owners pay their taxes in installments or lump sums.

Understanding Property Taxes in Guelph

Although the province of Ontario has held the education tax at .153% since 2020, municipal taxes in Guelph continued to climb from a residential low of .96701% in 2020 to 1.07608% in 2023, for a combined total property tax of 1.22908%. But for 2024, they’re dropping again to .975389% + .153% = 1.128389%.

What is Ontario’s Land Transfer Tax?

The Land Transfer Tax in Ontario (LTT) is a tiered tax based on the property's purchase price, payable by the buyer upon closing. These are the tiers:

• 
  0.5% on the first $55,000 of the purchase price.
• 1.0% between $55,000 and $250,000.
• 1.5% between $250,000 and $400,000.
• 2.0% between $400,000 and $2,000,000.
• 2.5% over $2,000,000.

For example, for a property purchased at $500,000, you would calculate the Land Transfer Tax as follows:

• 0.5% x $55,000 = $275
• 1.0% x $195,000 = $1,950 
• 1.5% x $150,000 = $2,250 
• 2.0% x $100,000 = $2,000

The total Ontario Land Transfer Tax would be:
$275 + $1,950 + $2,250 + $2,000 = $6,475

Rebates and Exemptions of Land Transfer Taxes

First-time home buyers may receive a rebate of up to $4,000 for the LTT if they meet specific criteria. The buyer must:

• Be a Canadian citizen or a permanent resident.
• Be 18 years or older.
• Occupy the home within nine months of purchase.
• Not have owned a home or have interest in a home anywhere in the world. This rule also applies to the buyer’s spouse.

Home buyers in Toronto pay an additional Municipal Land Transfer Tax (MLTT), which doubles the amount of property tax owed since you calculate it the same way as the LTT. There’s a rebate available for eligible first-time Toronto home buyers for up to $4,475 of the MLTT.

The family transfer exemption nullifies the LTT if the owner transfers the land to a spouse, children, or other family members without a mortgage on the title. 

Those who acquire land primarily for farming purposes may be exempt from paying Ontario LTT if the acquirer is a Canadian citizen or permanent resident and farming continues on the land.

Ontario LTT doesn’t apply to transfers of land to registered charities.

Ontario LTT doesn’t apply to land transfers from the Crown (government) to any other person or entity.

Is there HST for Resale Homes in Ontario?

In most cases, there isn’t any HST on a resale home. However, there are certain situations in which real estate in Ontario is subject to the Harmonized Sales Tax (HST). For example:

• Substantial renovations: When sellers remove or replace 90% or more of the home's interior, HST will apply to the sale.
• Partly commercial: HST may apply when the purchased property is a residential/commercial mix, such as a home with a storefront.
• Sales by businesses: HST may apply to the sale if a company, such as a developer or a flipper, sells a property it was holding as inventory.

Does HST Apply to Vacant Land in Ontario or Commercial Properties?

Vacant land used for personal use and never for business purposes is exempt from HST. Subdividing the vacant land into parcels and selling it to a relative for personal use also avoids HST. But if the seller used the land primarily for business or subdivided it into more than two parcels and sold it to non-relatives, then HST applies. 

In Ontario, commercial real estate sales are generally subject to HST. This includes office buildings, retail spaces, industrial buildings, and other non-residential properties.

The seller of the commercial property is responsible for collecting HST from the buyer and remitting it to the CRA. If the buyer’s business collects and remits HST, they may be able to claim an input tax credit (ITC) to recover the HST paid on the purchase.

Understanding Capital Gains Tax

In some cases, you pay capital gains tax on the sale of property in Ontario. For example, currently, when you sell a property for a profit, 50% of the capital gain is taxable and must be included in your income for the year, subject to your marginal tax rate. 

Amendments to the Income Tax Act will change the taxation of capital gains in Canada starting June 25, 2024.

For Individuals: 

• Capital gains up to $250,000 will have an inclusion rate of 50%, meaning 50% are taxable.
• Capital gains exceeding $250,000 will have an inclusion rate of 67%, meaning 67% of the profits above this threshold are taxable.

For Corporations and Trusts:

• The inclusion rate for all capital gains will increase from 50% to 67%.

When Are Capital Gains Taxable?

You don’t have to pay capital gains tax in Ontario real estate if you sell your principal residence. According to the Canada Revenue Agency (CRA), your principal residence can be any of the following:

• House
• Cottage
• Condo
• Trailer
• Houseboat
• Apartment
• Mobile home

You must pay capital gains tax when selling an investment property or a partially rented one. Here’s how it works:

• You buy an investment property for $500,000.
• You sell it for $800,000.
• The increase in value is $300,000.
• You need to pay tax on 50% of the first $250,000, which is $125,000, and 67% on the remaining $100,000, which is $67,000. So, on a $300,000 gain, $192,000 is taxable. 
• The taxable amount adds to your income for the year.

Tips For Managing Capital Gains

Managing capital gains tax effectively can minimize the amount you owe and optimize your overall tax situation. Here are some tips:

Tip #1: Use the Principal Residence Exemption in Canada

Designating your primary home as your principal residence can help you take advantage of the capital gains tax exemption on its sale. Selling your primary residence will not trigger capital gains on the profits from the sale.

Tip #2: Timing of Sales

If you have investments with capital losses, consider selling them in the same year to offset your gains. You can also consider selling properties or investments when your income is lower to pay less tax.

Tip #3: Maximize Deductions and Credits

Track and deduct selling expenses, such as legal fees and tax on real estate commissions in Ontario, from your capital gains.

Document home improvement costs that can increase your property's adjusted cost base, reducing taxable gain.

Tip #4: Income Splitting

Transfer assets to lower-income family members before the sale to take advantage of their lower tax rates. 

Tip #5: Invest in Tax-Advantaged Accounts

Use Tax-Free Savings Accounts (TFSA) for investments, as gains within TFSAs aren’t taxable.

Consider using Registered Retirement Savings Plans (RRSPs), which defer tax until withdrawal and typically offer a lower tax rate in retirement.

Tip #6: Deferral Strategies

You can spread capital gains over several years if you sell a property under an installment sale agreement.

Think about putting money into Real Estate Investment Trusts (REITs) that distribute returns over time, deferring the realization of gains.

Tip #7: Gifting and Donations

Donate appreciated assets to registered charities to eliminate or minimize capital gains tax and receive a charitable donation tax credit.

Consider potential tax implications and benefits if you gift properties to family members.

Tip #8: Exemptions 

The Lifetime Capital Gains Exemption (LCGE) reduces taxable gains for eligible small business shares or qualified farm and fishing property. As of June 25, 2024, the exemption will increase from $971,190 to $1.25 million.

Tip #9: Seek Professional Advice

Consult with a tax professional to explore advanced strategies and ensure compliance with tax laws. An estate planner can incorporate capital gains tax management into your long-term financial plan.

Thinking of Buying or Selling a House in Ontario?

Navigating property taxes in Ontario involves understanding the assessment process, when to apply municipal and education tax rates, when HST and capital gains apply, and the potential for rebates and exemptions. 

Whether you're a homeowner, an investor, or a prospective buyer, staying informed about calculating and applying these taxes can help you better manage your finances.

Andra Arnold and Associates are your trusted real estate tax law experts. They can guide you through your buying or selling journey with tailored advice based on your situation. 

Let’s chat

FAQs

What are the 2024 property tax rates in Guelph?

You can determine property tax by the property’s class. Below are the two most common categories: 

• Residential property tax rates in Guelph include the municipal rate of .975389%, education rate of .153%, and total property tax of 1.128389%.
• Commercial property tax rates in Guelph include the municipal rate of 1.454305% and the education rate of .88%, for a total property tax of 2.334305%. 

How can one apply for a land transfer tax rebate in Guelph?

Rebate application forms are available online and at government offices. You can claim a refund when you register the land transfer papers and pay the taxes. If you don’t claim the rebate when you register, you pay the total tax amount and can claim the rebate within 18 months through the Ministry of Finance. You’ll need the following information for the application:

• A copy of your registered land transfer deed
• A copy of your purchase agreement 
• A completed Ontario Land Transfer Tax Refund Affidavit for first-time buyers of eligible homes
• A copy of utility bills or your driver’s license for proof of address

What should property owners in Guelph know about property tax assessments?

The Municipal Property Assessment Corporation (MPAC) evaluates properties across Ontario every four years and provides assessed values, which may differ from market values. Guelph determines your property tax amount by multiplying the MPAC-assessed value by the city’s annual tax rate. 

When do I have to pay property taxes in Guelph?

Guelph property taxes for 2024 are due in two equal installments. The first installment is due on August 30, 2024, and the second is due on October 31, 2024. CRA adds a 1.25% monthly penalty if not paid by the due date. Starting January 1, 2025, any taxes owing will be subject to an additional 1.25% interest charge per month plus the penalty. 

How Are Property Taxes Used in Guelph?

Seventeen cents of every property tax dollar goes to the province for elementary and secondary education. The remaining money helps fund Guelph city services and programs, such as:

• Local boards and shared services 34.4%
• Corporate and governance services 7.5%
• Public Services 37.9%
• Capital funding 10.6%
• Infrastructure, Development and Enterprise Services 9.6%