Frequently Asked Questions about Land Transfer Tax
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What is the electronic land registration system?
The electronic land registration system allows for the registration of conveyances through the use of Teraview software that is provided by Teranet, Inc. The system replaces the need to register transfers on paper at a Land Registry Office. The system includes a number of land transfer tax statements which need to be completed in order to register. Electronic registration is mandatory in Ontario, except for complex registrations.
What is the difference between a nominal transaction and a tax exempt transaction?
A nominal transaction means that no consideration has passed between the parties to the transaction. In such a situation, the value of the consideration is nil and one or more statements on the Nominal screen in the Teraview system must be selected.
A transaction is exempt from tax because of the operation of an exemption in either the Land Transfer Tax Act or its regulations, even though there is value of the consideration for the transaction.
In this situation, the value of the consideration must be correctly reported and one or more statements in the Exemptions screen in the Teraview system need to be selected.
Note: a transaction, in the Teraview land registration system, is either nominal or exempt – it cannot be both.
Is land transfer tax paid when land is transferred from one spouse to another due to a separation?
Not all transfers of land between spouses or former spouses are exempt from land transfer tax. To be exempt, the transfer must fall within one of these three situations:
- the only consideration given is the assumption of any encumbrance registered on the land, such as a mortgage, or
- the transfer is in compliance with a written agreement of separation, pursuant to which the parties have agreed to live separate and apart, or
- the transfer is in compliance with a court order.
If one spouse is paying the other spouse for his or her interest in the land, in addition to assuming any mortgage, this transaction would not fit the first description.
For the second situation to apply, please note that the separation agreement must be in writing, and must provide that the parties have agreed to live separate and apart.
For land transfer tax purposes, spouse means either of two persons who are married to each other, or who are not married to each other and have cohabited:
- continuously for a period of not less than three years, or
- in a relationship of some permanence, if they are the natural or adoptive parents of a child.
The bank requires that my mom/dad be on title to my mortgaged property. Will I pay land transfer tax when my parent(s) later conveys legal title to me?
If the parent did not acquire a beneficial interest in the property as a result of the conveyance, the Ministry of Finance may accept the fact that the parent was on title as a trustee for the child. If satisfactory evidence is submitted to prove the existence of a trust, the value of the consideration for the conveyance of legal title from the parent to the child will be Nil and therefore, the land transfer tax is Nil. This is a conveyance from trustee to beneficial owner.
What is the value of the consideration where a parent transfers a half interest in property to the child, and there is a mortgage on the property?
The value of the consideration will include one half of the principal balance and accrued interest still owing under the mortgage, plus any other consideration that is given for the child to obtain the parent’s half interest in the property.
Are minutes of settlement acceptable as a written separation agreement?
Yes. Minutes of settlement are acceptable as a written separation agreement if, in that document, the parties have agreed to live separate and apart.
Can the transferee split a conveyance for the same property or register multiple conveyances to avoid the progressive rate of land transfer tax?
If it is evident that one of the reasons for registering multiple conveyances is to reduce the tax liability, tax will be collected as if only one conveyance was registered. In most cases, registering separate conveyances for properties with separate legal descriptions and Property Identification Numbers is not considered evidence of purposely reducing tax liability.
Sometimes, for income tax purposes, a conveyance is made where consideration is deemed to be paid. In these instances, what is the amount of the value of the consideration and would land transfer tax be payable?
Any consideration declared on the land transfer tax statements will trigger tax unless an exemption applies. However, the land transfer tax statements should only show the actual consideration given or to be given for the conveyance, unless the value of the consideration is deemed to be fair market value. If the value of the consideration is deemed to be fair market value, this amount should be declared. The land transfer tax would be calculated on the value of the consideration declared.
If the transferee is acquiring a 33% interest in land subject to a mortgage, what is the amount of the value of the consideration?
The value of the consideration includes:
- 33% of the balance of principal still owing under the mortgage and accrued interest to the date of the conveyance, and
- any other consideration or benefit given or to be given as part of the arrangement relating to the conveyance.
Is land transfer tax paid when a vesting order is registered?
Vesting orders are transfers and will be treated like any other transfer. The land transfer tax statements must set out the:
- nature of the order
- circumstances that gave rise to it, and
- value of the consideration applicable to the order.
What is required in the land transfer tax statements when the transferee is (or is not) the sole beneficiary of an estate?
Transferee Sole Beneficiary
The land transfer tax statements should set out that the transfer is from the estate to the only beneficiary entitled to the land under the terms of the will. The value of the consideration is Nil. If the lands are subject to a mortgage, the mortgage does not form part of the consideration.
The land transfer tax statements should set out that the transferee is the only beneficiary entitled to the land under the laws of succession or intestacy. The value of the consideration is Nil. If the lands are subject to a mortgage, the mortgage does not form part of the consideration.
Transferee Not the Beneficiary
The land transfer tax statements must set out the value of any consideration paid for the transfer.
More Than One Beneficiary
In any agreement where one of the beneficiaries takes the land in lieu of other assets in the estate, tax is payable on the value of the assets surrendered to the other beneficiaries plus any other consideration given.
More Than One Beneficiary in the residual assets of an estate
If the beneficiaries are entitled to the residual assets of an estate and the estate trustee has the discretion to distribute the residual assets as they see fit, the transfer of land from the estate to the beneficiary may or may not attract land transfer tax. Please contact us with your specific situation.