Property taxes in Canada: is it expensive to buy property?

On average, you should budget between 1.5% and 4% of the purchase price for one-off closing costs, though this can be much higher for non-residents due to speculation taxes.

• What are the main property taxes in Canada?

• Taxes on buyers

• Taxes on sellers

• Taxes on homeowners: recurring payments

• Is rental income taxed?

• First vs second home: tax implications

• How to save money on your property purchase

• Wealth taxes in Canada

• How to pay your taxes

• When to speak to a tax professional

• Useful resources

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What are the main property taxes in Canada?

Property taxes in Canada are primarily handled at the provincial and municipal levels. The main categories include:

• Land Transfer Tax: A one-off payment made when you buy a property.

• Municipal Property Tax: An annual recurring tax based on the assessed value of your home.

• Foreign Buyer Taxes: Surcharges applied to non-residents in specific provinces to curb speculation.

• Underused Housing Tax (UHT): A federal annual tax on vacant or underused properties owned by non-residents.

Who is subject to these taxes?

Anyone who owns real estate in Canada is subject to property taxes, but the amount depends on your residency status and the property’s location.

• Residents: Pay standard municipal taxes and provincial land transfer taxes.

• Non-residents: In addition to standard taxes, non-residents often pay higher upfront speculation taxes (e.g., in Ontario and BC) and may be subject to the federal Underused Housing Tax.

• Corporations: Entities owning residential property may face different reporting requirements and higher tax rates for specific surcharges like the UHT.

Buying

Canadian real estate: buying a house in Canada

Taxes on buyers

When purchasing a home, the most significant tax is the one-off transfer fee.

• Land Transfer Tax (LTT): This is payable in almost every province. Rates are usually tiered based on the purchase price, typically ranging from 0.5% to 3%.

• Municipal Land Transfer Tax: If you buy in Toronto, you must pay a city-level tax in addition to the provincial one, effectively doubling your transfer tax bill.

• Non-Resident Speculation Tax (NRST): Ontario currently charges a 25% tax on properties purchased by foreign nationals. British Columbia has a similar additional property transfer tax of 20% in certain regions.

• GST/HST on New Builds: Goods and Services Tax (GST) or Harmonized Sales Tax (HST) is generally applied to the purchase of newly constructed homes but not to “used” residential resale properties.

Exemptions:

• First-time buyers: Many provinces, including Ontario and British Columbia, offer a full or partial rebate on the Land Transfer Tax for first-time buyers who are residents.

• Resale properties: Standard residential resale homes are usually exempt from GST/HST.

Taxes on sellers

Selling property in Canada involves federal taxes on any profit made from the sale.

• Capital Gains Tax: If the property is not your principal residence, you must pay tax on the profit. For individuals, the inclusion rate is 50% for the first $250,000 of gains. Gains above this threshold are taxed at a higher inclusion rate of 66.67%.

• Non-Resident Withholding Tax: Non-resident sellers are subject to a withholding tax (typically 25% to 35% of the gross sale price). This amount is held by the CRA until a Certificate of Compliance is issued to confirm the final tax liability.

Exemptions:

• Principal Residence Exemption (PRE): If the property was your primary home for every year you owned it, the gain from the sale is generally tax-free.

Selling

Selling property in Canada: a complete guide

Taxes on homeowners: recurring payments

Once you own the property, you are responsible for ongoing municipal taxes.

• Municipal Property Tax: This annual tax funds local services like schools, police, and road maintenance. Rates are determined by the municipality and are often called “mill rates.”

Typical rates: These vary wildly across the country, from as low as 0.31% in Vancouver to over 2% in some parts of Manitoba.

• Typical rates: These vary wildly across the country, from as low as 0.31% in Vancouver to over 2% in some parts of Manitoba.

Exemptions:

• Senior Citizen/Pensioner Grants: Some provinces offer “homeowner grants” or tax deferral programs for low-income seniors or people with disabilities to reduce their annual tax bill.

Is rental income taxed?

Yes, all rental income earned from Canadian property is taxable.

• Non-residents: You are generally required to pay a 25% withholding tax on the gross rental income each month.

• Section 216 Election: You can elect to be taxed on your net income (income minus expenses like maintenance and property tax) instead of gross income by filing a Section 216 return. This often results in a significant tax refund.

Taxes

The tax system in Canada

First vs second home: tax implications

Canada’s tax system heavily favors “principal residences.”

• Primary Home: Gains on the sale are usually exempt from tax, and first-time buyers may receive land transfer tax rebates.

• Second/Investment Home: These properties do not qualify for the principal residence exemption, meaning capital gains tax applies upon sale. Surcharges like the Underused Housing Tax are also more likely to apply if the second home is left vacant.

How to save money on your property purchase

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• Pay the seller directly: You can use the multi-currency service to send your deposit or final payment to the seller’s lawyer.

• Move money between accounts: If you have already opened a Canadian bank account, you can use the multi-currency service to transfer funds from your home country at the mid-market exchange rate with transparent fees.

Check multi-currency services today to find out how they can assist you.

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Wealth taxes in Canada

Canada does not have a general federal wealth tax. However, property owners should be aware of the Underused Housing Tax (UHT).

The UHT is an annual 1% tax on the value of vacant or underused residential property. While it primarily targets non-residents, all affected owners must file an annual return by April 30 even if they are eligible for an exemption.

How to pay your taxes

Taxes are paid to different authorities depending on the type:

• Municipal Property Tax: Paid directly to your city or town hall. Bills are usually issued once or twice a year and can often be paid through online banking or even monthly through your mortgage lender.

• Income and Federal Taxes: The Canada Revenue Agency (CRA) handles rental income tax, capital gains, and the Underused Housing Tax.

When to speak to a tax professional

The tax requirements for non-residents are complicated. It is usually a good idea to speak to a tax professional or real estate lawyer if you:

• Are a non-resident buying property in a province with speculation taxes.

• Plan to rent out your Canadian property.

• Are selling a property and need a Certificate of Compliance.

Useful resources

Canada Revenue Agency (CRA), The federal authority for income tax, UHT, and non-resident reporting.

Government of British Columbia: Property Taxes, Detailed guides on transfer taxes and homeowner grants in BC.

City of Toronto: Property Tax, Information on municipal rates and speculation taxes in Canada’s largest city.

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