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Land transfer tax determining the true value of the consideration, Autumn 2006

The Ontario Ministry of Finance – Land Transfer Tax Section issued Bulletin LTT1-2006 in March 2006. The Bulletin caused a great deal of concern on the part of the real estate bar. Many lawyers who specialize in acting for purchasers of new homes seemed to think that the Ministry was increasing the land transfer tax payable by purchasers by adding new items on which land transfer tax was payable. The Ministry, however, has always maintained that the Bulletin was simply a clarification of the existing policy and was issued to provide guidelines to assist in understanding how to calculate the “value of the consideration” in the purchase of newly constructed homes.

Pursuant to Section 1(1) of the Land Transfer Tax Act land transfer tax is payable on the value of the consideration which is defined as follows:

“the gross sale price in the amount expressed in money of any consideration given or to be given for the conveyance by or on behalf of the transferee and the value expressed in money of any liability assumed or undertaken by or on behalf of the transferee as part of the arrangement relating to the conveyance and the value expressed in money or any benefit of whatsoever kind conferred directly or indirectly by the transferee on any person as part of the arrangement relating to the conveyance”.

Traditionally, builders’ lawyers have prepared the transfer showing the purchase price as set out in the agreement of purchase and sale and purchasers paid land transfer tax on that amount. The Bulletin reminds us that the definition of value of the consideration is broad, and is not limited to the purchase price stated in an agreement of purchase and sale

For example, purchasers of new homes often choose to purchase from the builder various upgrades and extras. The Bulletin makes it clear that the values of these upgrades and extras are to be included in determining the value of the consideration. Some examples of upgrades and extras that are to be included are:

- upgrades for flooring, cupboards, doors, windows, counters, etc.
- finished basements
- fireplaces
- lot premiums
- driveway paving
- tree planting
- sodding and grading

In many cases, the builder has assumed liabilities and incurred other miscellaneous costs which are passed on to the new home buyer. As these costs are assumed by the new home buyer as part of the transaction, they form part of the value of the consideration. Some examples are:

- lot levies
- development charges
- school levies
- Ontario New Home Warranty Plan fee

As well, in new homes, builders typically install gas, hydro and water meters. Where the builder adds the cost of the meters, and installation costs over and above the purchase price stated in the agreement of purchase and sale, the value of the meters and the installation costs are to be included in determining the value of the consideration.

In many cases, the builders deal directly with the purchaser with respect to upgrades and extras and the real estate lawyers are often not aware that a particular purchaser has chosen any upgrades or extras. As a result of the Bulletin, it is now important that we be advised of such upgrades and extras so that we can properly complete the transfer.