1% Luxury Tax Increase - Buying a luxury home in Toronto may get more expensive
Availability and affordability of housing is a major challenge faced by the City of Toronto. The Toronto City Council recently made a proposal to try to help remedy this problem. The proposed solution is to cause a 1% increase in the Municipal Land Transfer Tax ("MLTT") for homes valued at $2,000,000 or more.
In February 2021, the Toronto City Council met to approve its 2021 operating budget and the proposed tax increase was tabled for discussion. There have been several debates on whether or not this change would improve the overall housing situation in the City. While some argue that the negative impacts exceed the benefits, others contend that the 1% tax increase will ultimately improve the Toronto real estate sector.
What does this increase mean?
Municipal land transfer tax (MLTT) for properties priced at $2 million is currently set at 2.5%, the MLTT is in addition to the provincial land transfer tax payable on any home purchase in the province of Ontario. However, a proposed 1% increase would mean that home buyers would have to pay a 3.5% MLTT on homes priced at $2,000,000 or above.
What are the pros?
Toronto Councilor, Brad Bradford pointed out to CTV News Toronto that there is an affordable housing crisis in Toronto and that this tax increase could generate revenue for the City to address the crisis. According to a 2021 Operating Budget Briefing Note, $18.7 million could be generated in revenue this year if the MLTT increase is approved. An additional $6.4 million could be generated for properties worth $3 million or more. You can read more on this here. Proponents for the increase suggest that revenue generated from the tax increase would enable the City to fund solutions to make housing more available and affordable.
What are the cons?
With some still dealing with the economic impacts of the Covid-19 pandemic, paying higher taxes is far from ideal. City staff in the same Budget Briefing Note explained that this increase could encourage buyers and sellers to transact below the cut-off and ultimately reduce the liquidity of real estate. The effects of this increase may also boomerang on the real estate market because move-up buyers may be discouraged from listing their homes for sale and would prefer to renovate instead. Don Kottick, Chief Executive Officer at Sotheby’s International Realty Canada expressed that the increase may cause a ripple effect in the real estate sector because if current home owners are discouraged from up-sizing, it means there will be no affordable housing option for those looking to buy. For more on this perspective please follow the link here.
Similarly, John DiMichele, CEO of the Toronto Regional Real Estate Board (TRREB) also stated that the proposed increase does not address the declining housing supply situation but rather chases “short-term” revenue gain.
This increase in the MLTT remains in the approval stages and is not a foregone conclusion. It isn't possible to know now whether this new tax development will improve the housing challenges for potential home buyers in the City of Toronto. We will keep this post updated as more information becomes available.
For any questions about the Municipal Land Transfer Tax (MLTT) or other general real estate law related questions, please don’t hesitate to contact Northview Law at 416-639-7639, or follow this link to book a free consultation.