Torontoist Explains: The Municipal Land Transfer Tax
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Torontoist Explains: The Municipal Land Transfer Tax

Real estate agents hate it, but city hall needs it. Here's why the Municipal Land Transfer Tax isn't going away.

This article is part of Torontoist’s special 2016 municipal budget coverage. If you value journalism like this and you’d like to see it year-round, then subscribe now and help fund a staff writer to hold City Hall accountable.

If you ever want to rustle a real estate agent’s jimmies, then all you need to do is mention the municipal land transfer tax. First implemented in 2008, the tax on Toronto real estate transactions is greatly disliked by the real estate industry. But it’s also an increasingly vital part of the City’s precarious budgeting act.

Here’s how the land transfer tax works, why some people are hopping mad about it, and why it’s not going away.

The Basics

Torontonians are occasionally guilty of a champagne taste on a beer budget. Partly it’s because we want expensive, world-class things, like subways, while preserving our storied Orange Order thriftiness. But it’s also because provincial legislation limits the ways the City can raise revenue. Unlike other major North American cities, Toronto is prohibited from taxing income, fuel, or sales; nor can we tax hospitals, school boards, or colleges and universities.

So what can we tax? For those of you just joining us:

  • Property taxes;
  • the late vehicle registration tax;
  • road tolls or a congestion tax;
  • parking tax;1
  • sales taxes on liquor and cigarettes;
  • an “entertainment tax” on the price of admission to venues;
  • a billboard tax;
  • and the star of today’s show, the municipal land transfer tax, or MLTT.
From the 2014 IMFG report "Is Toronto Fiscally Healthy" [pp  18, PDF]

From the 2014 IMFG report “Is Toronto Fiscally Healthy” [pp. 18, PDF]

Toronto’s lack of revenue tools creates significant funding constraints, and makes it more difficult for the City to adequately fund pricey portfolios like transit and social housing. These responsibilities, combined with a lack of money from other orders of government, create additional pressure on the few revenue sources that the City has available to it and uses.

The MLTT was introduced in 2007 and first implemented in 2008 as a response to the City’s structural deficit. It’s a tax on land sales within the city. The exact rate depends on 1) the sale price of the property, and 2) whether it is residential or not. (First-time home buyers also get a flat $3,725 rebate.)

For example, if you bought a detached home for $700,000 (currently below the city average), you’d also have to pay $9,725 in MLTT.2 It works out to about 1.4 per cent of the sales price. This is how it’s calculated:

Rate Amount taxed Tax
The first $55,000 0.5% $55,000.00 $275.00
The next $345,000 1% $345,000.00 $3,450.00
Everything over $400,000 2% $300,000.00 $6,000.00
Total $700,000.00 $9,725.00

Many other cities have a similar tax. The way it is calculated varies from place to place, and in some cities the cost is split between the buyer and the seller. For comparison, here’s the rate you would pay on that $700,000 property in a few other cities:3

Unsurprisingly, real estate agents have led the charge against the MLTT, arguing that the added tax keeps property sales down and prices people out of the market. This line of thought is also popular with politicians whose highest calling is to save middle-class homeowners money, not to mention the homeowners themselves. So come budget time, it’s customary for people to make grumbling noises about scrapping the MLTT. It’s still not going to happen.

While final numbers for 2015 aren’t in yet, based on year-to-date revenue we can assume that, once again, MLTT revenue is higher than expected.

Over the past several years, the MLTT has become an increasingly lucrative revenue source for the City, in part because of Toronto’s sustained real estate boom. But given the unpredictability of the housing market, City staff prefer to keep their estimates low when preparing the budget. This year is no exception—MLTT revenue is projected to be $95 million over budget, coming in around $500 million.4

Operating Revenue Sources, 2009 2015

The MLTT currently contributes four per cent of the City’s operating revenue, which may seem like small potatoes. However, it would still be incredibly difficult to replace. $430 million is equivalent to a 15 per cent property tax revenue increase—a complete non-starter for a council that balks at three per cent.

Now, we do have some other taxes we could implement, and we could still ask the Ontario government to let us add new ones. But don’t hold your breath: City Council shot them all down in a vote last term.5

The truth is, using more revenue tools still wouldn’t justify getting rid of the land transfer tax. Prudent budgeting means not putting all of our eggs in one basket, and, as it stands, we have so few “baskets” we can’t afford to get rid of any. Love it or hate it, the MLTT is here to stay.6

  1. This one is a little hairy because it’s so similar to the taxes we’re not allowed to have. It would probably be a tax on parking lot owners, not users. 
  2. Not counting provincial taxes, etc.  
  3. This sampling of cities is taken from a very informative 2007 staff report on possible CoTA revenue tools.  
  4. Give or take $20,000. 
  5. Last term’s City Council is pretty much this term’s City Council. 
  6. Then again, they did get rid of the vehicle registration tax…oh God

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