Housing Groups 'Revolt' over Toronto's Proposed Land Transfer Tax

Written by Posted On Wednesday, 27 June 2007 17:00

The City of Toronto's Executive Committee has unanimously approved a staff recommendation that a new land transfer tax be implemented for home buyers. The tax would double current land transfer rates, and result in another $4,200 in taxes for the average Toronto home buyer. The proposal will go before the full City Council in July.

The Toronto Real Estate Board (TREB) says the tax would give Toronto the highest land transfer tax in Canada and the second highest in North America.

Bob Finnigan, president of the Building Industry and Land Development Association (BILD) says that if the measure is passed, City Council "may be facing a tax revolt, not to mention trouble at re-election time."

TREB president Dorothy Mason says the tax, which would match the land transfer tax already paid to the Province of Ontario, is unfair because "the city doesn't provide any land transfer related services, so this tax is just a way of forcing home buyers to pay for services for everyone."

She says, "Many home buyers will have no choice but to take money from their down payment to pay this tax, which would mean extra mortgage interest and higher mortgage insurance premiums. For the most vulnerable, this means that the second land transfer tax will actually cost over $15,000. The city will literally be forcing people to take out a mortgage to pay a tax. That is unfair," Mason says.

Under the current provincial system, first-time buyers of new homes and condos are eligible for a rebate of $2,000. The city is looking at providing a similar rebate for its tax.

However, Finnigan says the land transfer tax proponents "give short shrift to housing affordability, choosing to believe that the tax will be magically absorbed. The inconvenient truth of the matter is that this tax is paid by home buyers as an adjustment on closing so the only ones taking the hit will be the buyers themselves."

The proposed tax is "regressive because the tax burden is higher for low income households," says the Real Property Association of Canada (REALpac). The proposal calls for a 0.5 per cent tax on sales up to $55,000; one per cent for sales between $55,000 and $250,000; 1.5 per cent for sales from $250,000 to $400,000, and two per cent for sales over $400,000. REALpac says the thresholds are too low, asking how many $55,000 homes are sold in the City of Toronto. The average MLS sale in the Greater Toronto Area in mid-June was $384,576.

The City of Toronto was granted the authority to impose taxes by the City of Toronto Act, which came into force on January 1. The city says it needs more revenue to keep up with its expenses, which are not being covered by current property tax levels. For several years, Toronto and other Ontario cities have been at odds with the province because the cost of expensive social services programs have been downloaded onto the municipalities.

The city's staff report on the proposals says Toronto "needs to consider alternatives to property taxes, which for residents are already increasing at about the rate of inflation plus an amount to improve the economic competitiveness of the tax rates applying to the city's non-residential property classes."

Already this year, the city has implemented new user fees for garbage collection, and it has hiked water rates. In addition to the land transfer tax proposal, the City Council will vote on a Personal Vehicle Ownership Tax of $60 per personal vehicle per year, and $30 for motorcycles. It is also looking at new taxes for alcohol sold in stores and for billboards.

"The revenue from these taxes is intended to support increased investment in municipal priorities, including city-building initiatives in areas including transportation (transit and roads), parks and recreation, culture and climate change," says the staff report. "However, some portion of the new tax revenues will be required to bridge the fiscal shortfall in 2008, depending on the provincial announcement to upload social service programs back to the province and off the property tax base. These funds will be applied only to core municipal services and not used to fund provincial services such as social assistance and housing."

But critics at four public consultations said the city could do without new tax revenue if it did a better job of managing its finances.

"The sad irony is that the City of Toronto land transfer tax runs completely contrary to the province's efforts to curb urban sprawl," says Finnigan. "People will drive across town to save a few cents on gas, so if anyone thinks they won't cross a regional border to save more than $4,000, they are dreaming in Technicolor."

TREB says that hundreds of its members have already sent emails to Toronto Mayor David Miller and all members of council to oppose the tax. "We plan to keep up the fight," says Mason.

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Jim Adair

Jim Adair has been writing about Canadian real estate, home building and renovation issues for more than 40 years. He is the former editor of Canada’s leading trade magazine for real estate professionals, as well as several home building, décor and renovation titles. You can contact him at [email protected]

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