New Year, New Tax: Luxury Homes in One of Canada’s Priciest Cities Just Got More Expensive

The Toronto City Council approved the taxes in September as part legislation aimed at shoring up the city’s budget. 

“Depending on what the house is worth, you’re getting into double or triple the original amount of the tax,” said Mike Clark, a lawyer specializing in real estate at Toronto firm Korman and Co. Instead of a tax of 2.5% for any property over C$2 million, the top rate will now reach 7.5% for homes worth more than C$20 million, Clark said. 

As a result, the buyer of a C$20 million house will pay a one-time transfer tax of C$1.5 million to the City of Toronto―up from C$500,000 in 2023. 

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Ontario’s 2.5% land-transfer tax, a separate fee paid by all home buyers in the province, will not change, Clark said. Toronto is the only city in Ontario to charge a municipal land transfer tax on top of the province’s.

The new taxes will escalate with the cost of a home, starting at 3.5% for homes worth C$3 million and topping out at the 7.5% rate. 

So far, the tax hike hasn’t deterred his home-buying clients looking in the new year, Clark said.

 “A few people who were contemplating larger purchases moved them forward. I had one guy at C$3 million who didn’t care,” he said. “A lot of my clients at the high end are showing up with huge amounts of cash, so the tax is annoying, but they’ve got the money.”

Cailey Heaps, president and CEO of Heaps Estrin, a Toronto property agency that specializes in luxury homes, noted an increase in closings at the end of the year to get ahead of the tax. “It’s less meaningful at the C$3 million range but definitely felt above C$5 million,” she said. 

The tax comes as another blow to a sluggish market beset by record-high mortgage rates and a Federal ban on foreign buyers, Heaps said. “It was shocking that the city introduced this into what’s already a struggling market. We already tax people so heavily for the privilege of buying a home. This also doesn’t solve the housing issue. These are not houses first-time buyers go after.” 

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A search on Canadian real-estate site Point2Homes revealed 102 houses in Toronto with asking prices of more than C$5 million. In November, the average selling price in Toronto was C$1.08 million—“basically flat” year over year, according to the Toronto Regional Real Estate Board (TRREB), an industry group representing the entire market. The average selling price was down 2.2% month over month.

Paul Baron, TRREB’s president, is also critical of the tax.

 “Our position has always been that the concept of a land transfer tax doesn’t benefit home buyers, due to the unfair nature of the tax, which has to be paid upfront,” he said in an e-mail. 

In fact, the tax may further complicate the city’s dire housing situation, Baron said. “Council’s decision may impact our housing challenges and supply shortage in a negative way by deterring move-up buyers from freeing up supply,” he said.

But Paul Maranger, co-founder of the Paul & Christian Associates luxury property agency in Toronto, was more sanguine. 

“We may see a pause at the top end, because even though buyers can afford a few hundred thousand dollars extra, it hurts psychologically,” he said. “But this tax will still be one of the lowest in the world.” 

According to global tax consultancy UHY, Belgium has the highest average property purchase taxes of any country for real estate worth the equivalent of US$1 million, at 11.3%. The global average is 3.3% for properties in this price bracket, UHY noted. The U.S. levies just 0.6% on average and―in contrast with its largest city―Canada charges an average 1.8%. 

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Affluent Suburbs to Benefit

Municipalities like Mississauga and Oakville―nearby, but outside Toronto’s city limits―could benefit from the new fees, Maranger said, since they don’t impose their own land-transfer taxes. 

“The purchaser might say, ‘I’m just going to move half an hour out.’ But the benefit will be short-term” as buyers become inured to the tax, he said.

Toronto’s home purchasers will eventually see the tax as “the cost of doing business,” said Jordan Weinberg, a partner at Toronto accounting firm MNP. “They won’t be happy about it, and I don’t think it’s fair, but it won’t stop people from buying in Toronto.”

The broader effect is that “local taxes seem to be ramping up on targeting high-income earners,” Weinberg said. In January, Toronto is also tripling its so-called Vacant Home Tax to 3% of a home’s value; the tax affects homes that are not principal residences and unoccupied more than six months in a year. According to the CBC, the city is also considering a separate land transfer tax on foreign buyers.

In the long run, steeper taxes will affect few purchasing decisions at the luxury end, said Joanna Lang, a managing partner at Outline Financial in Toronto and who specializes in high-value mortgages. 

“A luxury house is a discretionary purchase. What drives buyers is wanting to be in a specific neighborhood, on a specific street,” she said. “Will it be more expensive and painful? One hundred percent. Will that buyer move to a different region because of this tax? I doubt it.”

This article originally appeared on Mansion Global.