TORONTO, ONTARIO, December 12, 2018 – The Toronto Real Estate Board is concerned about the City of Toronto’s continued reliance on the Municipal Land Transfer Tax (MLTT) revenue to balance its budget. TREB’s concern is validated by the recent City Finance Department update, being reviewed by City Council on December 13, 2018, showing revenue from the LTT $100 million lower than expected. This will be an ongoing challenge and concern for the City’s finances and steps should be taken now to reduce that dependency, notwithstanding that the current overall City budget is expected to see a year-end surplus.
TREB has long been a vocal and outspoken critic of land transfer taxes, believing that they are an unfair and inefficient government revenue tool. T
the LTT reduces mobility and discourages right-sizing, thereby reducing the number of homes for sale. Predictably, a reduction in sales contributes to less LTT revenue for the city. The buyer of an average priced home in the City of Toronto now pays $13,335 upfront in MLTT, and this is in addition to a similar $13,335 in LTT to the province.
TREB has consistently pointed out, in recent years, that the City’s budget has relied more and more heavily on a revenue source that has already been criticized by the former City Manager for being unpredictable and unreliable. City Hall should be focused on making home ownership in this City more affordable, not less; and should be relying less on this tax, not more. TREB understands that eliminating these taxes is unlikely, at least in the short-term. However, there are steps the City can take now to help mitigate the negative impacts of these taxes on housing supply and choice:
• First, adjust the tax rates for inflation. Currently, the second highest Toronto LTT rate of 2% is levied on the portion of a home’s price above $400,000 with an additional surcharge above $2 million. As house prices have increased, more and more of the value of the home is being taxed at the higher rates. City Council’s original intention was to only charge the higher rate on properties above the average price. Under today’s conditions, that should mean that the 2% rate should not be applied for any home priced under $843,000 (current average price in Toronto) resulting in an upfront Toronto LTT of $13,335. Instead, the City is charging the higher rate on people purchasing homes priced as much as 52% below the current average priced home.
• Second, adjust the LTT first time home buyer rebate for inflation. When the Toronto LTT was first implemented, Toronto City Council specifically amended the proposal to increase the maximum allowed rebate for first-time buyers to $3,725 (the amount of LTT payable on a $400,000 home), from the originally proposed $2,000 (the amount of LTT payable on a $225,000 home). The $400,000 threshold was chosen because, at the time, that was the average price of a home in Toronto. In essence, City Council decided that they did not want any first-time buyer, who was purchasing up to an average priced home, to have to pay ANY LTT. Unfortunately, this intention is not the reality for most first-time buyers in Toronto today, because the maximum rebate has not kept up with inflation. With the average price of a home in Toronto currently sitting at $843,000, most first-time buyers end up paying a significant balance in LTT. In 2008, the Toronto LTT paid by a first-time buyer purchasing an average priced home would have been zero. In 2018, a first-time buyer purchasing an average priced home would have to pay an upfront $8860 in Toronto LTT after the rebate of $4,475 is applied on top of the provincial LTT.
The unpredictability and unreliability of land transfer taxes as a government revenue stream is one of the many reasons that make these taxes ill-suited for funding important public services, and why it would be irresponsible for any additional municipal governments to pursue this taxing authority and if they do, it should not be granted by the province.
With the City’s 2019 Budget process expected to begin soon, TREB looks forward to working with City Council on this important issue.
Senior Manager, Public Affairsmaryg@trebnet.com (416) 443-8158
TREB is Canada’s largest real estate board. Over 53,000 residential and commercial TREB Members serve consumers in the Greater Toronto Area. Greater Toronto REALTORS® are passionate about their work. They are governed by a strict Code of Ethics and share a state-of-the-art Multiple Listing Service®.
Courtesy of the Toronto Real Estate Board. TREB Wire https://ift.tt/2GbY8mk