Rules for first-time homebuyers tricky for spouses
By Kathy Rumleski, AdvocateDaily.com Contributor
Determining if you qualify for Ontario’s first-time-homebuyer land transfer tax credit is often confusing for spouses, so it’s best to talk to a residential real estate lawyer before assuming you're entitled to the credit, says Toronto real estate lawyer Sarita Samaroo-Tsaktsiris.
“There are different rules for legally married and common-law spouses than engaged couples, so it’s crucial to make sure you have it right. You may be surprised upon closing that you have to come up with more funds for land transfer tax costs,” Samaroo-Tsaktsiris tells AdvocateDaily.com.
If one spouse previously purchased a home, it does not necessarily mean the other will automatically receive the tax credit when purchasing a new residence together, explains Samaroo-Tsaktsiris, principal of SST Law Professional Corporation.
“If the spouse that previously owned a property, sold it prior to marriage, then the other partner qualifies for 100 per cent of the credit under that condition to be applied to the land transfer tax normally payable. But if the spouse that previously purchased a property, retained the property from the date of marriage and it became the matrimonial home of the couple, then the spouse that had never purchased a home before, automatically loses any entitlement to the first-time-homebuyer credit."
The Ministry of Revenue recently added a requirement that effective Dec. 16, 2017, all transfers of land must state whether the spouse was a non-resident at the time he or she disposed of the property, prior to marriage. The date of the sale must be provided and this declaration must be made upon registration of the deed.
Samaroo-Tsaktsiris says the main reason a first-time homebuyer would lose the credit when the spouse previously purchased, is due to the Family Law Act, which allows spouses to equalize assets in the event of a separation.
"The spouse that never purchased before now has an interest in the other spouse's property upon marriage," she explains.
"The other reason is that legally married or common-law spouses can transfer title to one another freely without land transfer tax consequences. Any transfers between spouses or former spouses are land transfer tax exempt under the Land Transfer Tax Act," she says.
“Everyone else — such as engaged couples, siblings or a parent and a child involved in home ownership — must pay the land transfer tax when they are added or removed from title to a property. However, such parties can claim part of the credit if only one party never purchased before, proportionate to the share they are acquiring.”
The benefit of being married is that you can go on and off title as much as you like, without land transfer tax consequence — as long as the spouses have the consent of their bank and the other spouse is assuming responsibility of the mortgage, says Samaroo-Tsaktsiris.
“I jokingly tell my clients that it should be called the all-or-nothing rule, like a marriage. You don’t get the credit if your spouse already received it unless your spouse disposed of the property prior to marriage - you either receive all or none of the credit.”
Samaroo-Tsaktsiris says the rules are often misunderstood and that’s why consulting a residential real estate lawyer is best.
Another component of the land transfer tax credit is that spouses who are separating will not be penalized if one of the parties buys the other’s 50 per cent share of the property as that will be land transfer tax exempt, Samaroo-Tsaktsiris says.
As home prices skyrocketed in Ontario, the province increased the first-time homebuyer land transfer rebate in 2017 to $4,000, up from $2,000 in 2016. Purchases made in Toronto can receive up to an additional first-time homebuyer credit of $4,475 to help ease the burden of the double land transfer tax in Toronto.
"We have yet to see if more credits will be available to all first-home buyers in the future and further rule changes in this changing market," Samaroo-Tsaktsiris says.