There’s been a lot of buzz around Toronto’s development charges lately, with the announcement that the City is looking to raise them by approximately 90%. This news hit around the same time that Mayor Rob Ford proposed to have Toronto’s Municipal Land Transfer Tax (MLTT) cut by 10%.

What does a 10% cut to the Land Transfer Tax mean?

According to the City of Toronto Executive Committee, Toronto’s Land Transfer Tax generated roughly $344.5 million in 2012. So, if the Land Transfer Tax ends up getting reduced by 10%, it could mean a loss of $34.5 million in revenue for the City.

At a press conference, Ford stated that the taxpayers of Toronto want a reduction in Land Transfer Tax, so he’s giving it to them. He believes that the City just needs to “find efficiencies” and that “the money is there.”

Are these “efficiencies” the development charges? If so, it hardly seems fair to developers and homebuyers. Let’s play out this scenario:

So, if you’re purchasing a $500,000 home, you pay about $5,725 in Land Transfer Tax - minus 10% - so you save about $570.

If development charges go up 90%, the developer will have to pay about $23,036 for each two-bedroom home they build - a difference of about $11,000 from what they pay now. A rise in development charges will affect affordability because developers take the charges into consideration when pricing the homes.

So, if both of the changes are implemented, you’ll save a few hundred dollars on the Land Transfer Tax, but you’ll be paying a few thousand more for that unit.

How Land Transfer Tax works in Toronto

So, what exactly is a Land Transfer Tax? It’s a tax you pay on the closing of your property. This tax is charged whenever a property is passed from one owner to another. The amount of Land Transfer Tax owed is based on the selling price of the property.

This example is found on the City of Toronto’s website:

This is for a home that sold for $500,000.01 (excluding GST)

For a property with only one residence on it, you pay an additional 2% for any amount of dollars over $400,000. And, for properties with more than one residence, you pay an additional 1.5% for anything in between $400,000.01 and $40,000,000.00, and an additional 1% for anything over $40,000,000.

What do you think?

Should the City of Toronto cut the Land Transfer Tax by 10%? Is it worth the savings if the City needs to cut back on services or raise taxes somewhere else? As a rapidly growing city, it seems odd to reduce a tax that generates a significant annual revenue.

Let us know how you feel about these changes!