The Toronto Land Transfer Tax underperformed in 2018

It came to light recently that Toronto’s municipal Land Transfer Tax, after a decade of good fortune, will miss the mark this year.

The target for 2018 was for the LTT to pull in $818 million, and it looks like the revenue will fall short by approximately 12%, or just under $100 million. Fortunately, under-budget expenses and over-budget revenues will leave the City with a surplus of $14.7 million at the end of the year.

The LTT has always been funny to me. While it’s a strong revenue source for the City, it’s also a major barrier preventing many families from buying homes. In order for the City to benefit from LTT, people need to be able to buy. With sales activity calming in 2018, the City is discovering that the LTT may not be the sure thing it’s been for the last 10 years. 

According to the Toronto Real Estate Board, the average price of a resale home in the Greater Toronto Area was $788,345 in November 2018. Toronto is the only municipality with an LTT in addition to the province’s LTT, so for the sake of example, let’s pretend this average priced home for the GTA was bought in Toronto. 

If you bought a home of this price in Toronto, you’d owe $12,241 in provincial LTT, plus another $12,241 in Toronto LTT, for a total of $24,483. And this money is due on closing; you can’t add it to your mortgage. Knowing this, many buyers probably put off their decision to purchase even though they can technically afford the home, they just can’t afford to close.  

Since the LTT has been so reliable up until this year, the city has been able to keep property taxes low. But now we may have to face a tough decision if the LTT continues to bring in less money. Should services be cut to keep property taxes low or do taxes need to be higher to maintain or improve the level of service? 

Honestly, I’m not sure what the answer is. I can’t picture any politicians making a property tax hike a key component of their campaign, even if it is what the city needs. And it doesn’t seem like the LTT is going anywhere. It still brought in more than $700 million this year.

In order for the LTT to be effective, people need to be buying homes. So, the solution may be to keep property taxes rising at or below the rate of inflation, keep the LTT the same, and figure out a way to make it easier and more affordable for families to buy homes in Toronto.

There’s already a rebate for the first $4,000 of LTT for first-time buyers. A home purchase of $368,500 would equal $4,002.50 in Toronto LTT. If the home was $500,000, they would owe $2,475 in Toronto LTT instead of $6,475. 

Perhaps other types of buyers should qualify for the rebate. I’m curious whether it would make a difference to low-income households if they received a rebate like first-time buyers. I also think a larger rebate would help given the high prices in Toronto. I realize that both of these suggestions equal less LTT revenue, but if there are more people who feel confident making a purchase, the market will be more balanced and healthier, resulting in more home sales, which leads to higher LTT revenue (in theory). 

All that said, I do feel like 2019 will be an okay year for LTT revenue. As mentioned, LTT is due on closing, so once all these condo buyers in Toronto close in 2019, there will be a surge in LTT revenue.