The Toronto City Council recently weighed the possibility of raising the city’s Municipal Land Transfer Tax (MLTT) on homes valued at $2 million or more, in an effort to increase the municipality’s annual revenue by up to $18 million. The proposal garnered divided reactions from various groups and organizations in the city.
Toronto’s Municipal Land Transfer Tax
The tax was introduced originally in 2008, as an additional tax to the province’s Land Transfer Tax on homes sold within Toronto city limits. The tax is payable at the time of registration of a transfer of ownership, and is calculated based on the value of the property as follows:
- The first $55,000: 0.5%
- $55,000.01 to $250,000: 1.0%
- $250,000.01 to $400,000: 1.5%
- $400,000.01 to $2 million: 2.0%
- Over $2 million: 2.5%
The provincial Land Transfer Tax (LTT) is calculated with the same rates. Based on the current rates, a person purchasing a home valued at $2 million in Toronto would pay $36,475.00 in MLTT as well as LTT, for a total of $72,950 in tax. As part of the final municipal budget approval meeting for 2021, the city sought input on what an increase of 1%, from 2.5% to 3.5%, on properties valued at over $2 million would mean in terms of revenue.
Affordable Housing Advocates Encouraged by Proposal
While most people have struggled to some degree over the past year given business closures and layoffs due to COVID-19, the financial impact will obviously be felt more by lower-income families, who have fewer funds and resources to help them cope with a dip in income. In a piece written for Now Magazine by the heads of the Daily Bread Food Bank and Social Planning Toronto, the authors point out that many families in Toronto are facing eviction from rental properties due to inability to pay, and Toronto shelters are at or near capacity. Conversely, the luxury home market has seen little impact, with a 30% increase in sales during the past year.
Reports by city staff showed a possible increase in revenue amounting from $18 million to $26 million annually if the luxury real estate tax were to be imposed. With those funds, the city could afford to build hundreds of affordable homes per year, helping to provide much-needed stable housing for lower-income families.
Real Estate Industry Says Tax Would Have a Cooling Effect
In contrast to the position above, the Toronto Region Real Estate Board (TRREB) expressed concerns over the potential fallout if the tax increase were to be implemented, not just on luxury homes but modest ones as well. The president of TRREB, Lisa Patel, listed two primary considerations to dissuade the new increase:
- The average price of a detached home in Toronto in 2020 was just under $1.5 million. This included more average homes than the high-end homes the tax was intended to target. When the tax rates were set, a $2 million price tag would have been reserved for the luxury market, but the gap is becoming increasingly small.
- By imposing the tax, it could discourage those who may be looking to sell their more modest homes to invest in something larger. A family who may have been considering a new home over $2 million might instead choose to stay where they are and renovate instead, therefore limiting the number of more modest homes on the market. Given that the primary reason for Toronto’s housing shortage is an inadequate supply of affordable homes, this would put even more strain on a limited market.
City Opts to Table Measure for Now
The City Council held the vote on Thursday, February 18th, and the budget passed without the increase in MLTT for high-end homes. Instead, the City has commissioned a further study into potential revenue streams to make up for shortfalls during COVID-19. Lisa Patel of TRREB applauded the move:
TRREB understands and appreciates the budgetary challenges faced by the City of Toronto, but addressing those challenges in a way that would have made housing even less affordable would have been the wrong path forward. In fact, it would have been a step backward. We applaud Mayor John Tory and City Council for not moving ahead with the proposed MLTT increase and instead focusing on a more comprehensive discussion on revenue options, which TRREB looks forward to participating in. We believe that City Council took the right approach by directing staff to study all revenue options, instead of narrowly focusing on the MLTT.
The real estate lawyers at GLG LLP in Toronto assist clients with a full range of residential real estate services, including purchases and sales, financing and even litigation if necessary. To learn more about how our team can help you with your real estate transaction, call 416-272-7557 or complete the online form to arrange a consultation.