When it comes to dealing with real estate transactions in Canada, different rules and regulations apply to each province. It is important to seek the advice of a real estate agent, lawyer, and accountant working in the area where you intend to buy the property, to ensure a smooth and uneventful transaction.
Most people assume that the actual purchase price attached to a property is the ultimate cost of acquiring or disposing of the property. This assumption is not only wrong but very misleading. In Canada, there are several additional fees associated with a home changing ownership. When combined, these extra costs sometimes add up to thousands of dollars, affecting the final price of the transaction. Whether buying or selling a home, the following additional costs are likely to come up:
- Several taxes apply to the selling and purchase of real estate property in Canada. For non-residents of Canada, income tax is charged on revenues generated in Canada. Therefore, a non-resident selling a home must pay income tax and file income tax returns. It is worth noting that Canada has tax treaties with some countries such as the U.S and the U.K, designed to protect individuals from double taxation on the same income.
- Property Transfer Tax (PTT) is one of the taxes applicable. It is calculated between 0.5-2% of the total value of the property. However, it is exempt for people who are purchasing their first home. To qualify for the exempt, one has to meet certain criteria. One must either be a Canadian citizen or a permanent resident. One must have never owned a home before in any part of the world. One must have also lived in the province they are purchasing the home for at least one year before the acquisition.
- There are conditions to be met by beneficiaries of this exempt as well. For the first year of ownership, the buyer must occupy the home as their primary residence. For vacant land, the house should be put up within the first year of ownership. The owner must also inhabit the house for the remaining part of the year.
- Besides these qualifications and conditions, other underlying factors may affect the amount of tax payable. To maximize the exemptions and rebates, one should consult a lawyer for the much-needed advice.
- The seller pays Clearance Certificate fees. The fees are payable for filing a clearance certificate. The price ranges between $300 and $1000 and is determined by the complexity of the transaction.
- The Capital Gains Tax normally doesn’t apply to your principal residence.
- A Goods and Services Tax (GST) of 5% is applicable for newly constructed houses. GST is usually included in the selling price. GST does not apply to resale homes unless they have been subjected to substantial renovations.
- Property tax is levied within local communities annually. As a result, there are different rates for different jurisdictions. While Property Transfer Tax is a onetime tax applicable during the transfer of the property, Property tax is an annual charge, and the amount may differ each year. Property Tax normally ranges between 0.5 and 2.5% of the market value.
Other fees that come up during the process of property transfer include:
- Realtor’s Fees which are between 3 and 7% of the home’s market value. The vendor usually pays Realtor’s fees.
- Home Inspection Fee is paid as a result of a home inspection often conducted at the buyer’s request. The price is usually around $450.
- Lawyer’s Fees often range between $500 and $800. These are payments for services rendered by the attorneys, ranging from title search to drawing up mortgage documents.
- The above costs are just but the general additional costs of real estate dealings in Canada. In individual provinces and jurisdictions, there may be other costs not mentioned here.