Looking into the future: How to alleviate the homebuyer’s tax hit
October 7th, 2013 by Lisa J. Gryba, AMP
Our suggestions for government to ease the Land Transfer Tax burden
We were grateful that the Honourable Jim Flaherty, Canada’s Minister of Finance, didn’t increase the minimum down payment to 10%, as he was contemplating. First-time homebuyers have a lot of saving to do, requiring that they save 5% of the purchase price, plus another 1.5% to 2% in closing costs in Manitoba – the majority of which is made up of a tax levy called the Land Transfer Tax. On top of this, our average home price has increased year-over-year for the past eight years, increasing the minimum down payment and capital required to complete a purchase.
What is Land Transfer Tax?
This is the tax that the Manitoba government places on the transfer of a property; it is born by the purchaser. Done electronically, the process involves registering a new owner at The Property Registry (i.e. a clerk inputs the name of the new owners, legal description and mortgage information that is registered against the property). This is accomplished in very little time, and in Manitoba, it is calculated on the purchase price of the property. In short, it can add thousands of dollars to the closing costs.
The Land Transfer Tax is based on a sliding scale of home values, and increases greatly once the purchase price exceeds $200,000. Since the Land Transfer Tax was brought into legislation in 1987, the average home price in Manitoba has risen dramatically ($80,000 versus $230,000). More importantly, over the past few years, the activity where most home sales are occurring is much more accentuated in the higher price ranges. The under-$100,000 sales market, which used to represent 60% of the total sales in the late 1990s, is now hovering around 10% of total sales; home sales over $200,000 now represent more than one out of every two sales.
Our suggestions to government for controlling the homebuyer’s tax hit
1. A first-time homebuyers Land Transfer Tax exemption – This would encourage our young people to stay in Manitoba. It also makes entering the housing market more affordable for first-time homebuyers.
2. Adjust the current provincial Land Transfer Tax brackets and tax percentages to more accurately reflect the current housing market. Our suggestion: $0 – $100,000 value = .5%; $100,000 to $200,000 value = 1%; $200,000 to $500,000 = 1.5%.
3. Consider putting a cap at the upper end of the housing market (eg. no tax applicable over $500,000). This will help to encourage new home construction.
by Lisa J. Gryba, AMP
I am a passionate and dedicated mortgage professional, devoted to enabling my clients to obtain the best mortgage products and interest rates for their nee