In his fall fiscal update on November 14, 2016 the Minister of Finance for the Province of Ontario took the not-unprecedented opportunity to announce an increase in Land Transfer Taxes payable by purchasers of real estate in Ontario.
Effective January 1, 2017 purchasers of commercial real estate will have to pay Land Transfer Tax to the Province of 2% for any amount of the purchase price in excess of $400,000. Prior to this increase the corresponding tax was 1.50 % of the purchase price. This represents an increase of 33.3%. So much for holding the line on tax increases.
While it is possible that the increase may have little or no impact in smaller communities the increase will affect all purchasers of commercial real estate in Toronto across the board as it is not possible to find any property in Toronto for less than $400,000. Currently, purchasers of real estate in Toronto also have to pay Municipal Land Transfer Tax to the City of Toronto. For commercial real estate the rate of tax for properties selling in excess of $250,000 is 1.5%. For the time being, there is no contemplated increase to the City’s share of the tax but with the need for more tax revenue it is a matter of time before the other shoe drops.
The net effect of this increase is that the acquisition costs for commercial real estate go up. An example may help.
Before January 1, 2017 a purchaser of commercial real estate in Toronto having a purchase price of $4.0 million would pay combined Land Transfer Taxes to the Province and to Toronto of $116,950, with the introduction of the increase in the rate that same purchaser will have to pay $134,950.
If you have entered into an agreement to purchase commercial real estate with a closing date in the New Year and have the option to advance to closing you can save, in the example above, $18,000. Enough to go shopping for Christmas!