Land Transfer Tax (don’t forget it)

The Land Transfer Tax is one of those interesting pains in the arse (in Ontario) that bites you when you are thinking about buying a house or property. I was very lucky that when I bought my first house, I didn’t have to pay the land transfer tax, because I had used a Ontario Home Owner Savings Plan (long since gone), which had this as its major bonus (for 1st home buyers only) not having to pay the Land Transfer Tax. This forgiving of the Land Transfer Tax on first homes has been replaced by the  Land Transfer Tax Refund for First-time Homebuyers (please read that carefully).

Unfortunately the second house I bought I had to fork out my land transfer tax, and I grumbled a great deal about it. This cost is one of those forgotten costs that is rarely spoken of, until closing costs are discussed (the danger is you might buy less house if you thought about it as part of your purchasing price), but you should think about it before you make an offer on a house.

Land Transfer Tax Calculation

Financial Calculator

You could try to calculate your Land Transfer Tax with a Calculator

From an Ontario Government page, the tax is calculated in the following way:

The tax rates on the value of the consideration are as follows:

Amounts up to and including $55,000 -0.5 %

Amounts exceeding $55,000 up to and including $250,000 - 1.0 %

Amounts exceeding $250,000 - 1.5 %

Amounts exceeding $400,000 where the land contains one or two single family residences – 2.0 %

For the definition of “single family residence,” as defined in subsection 1(1) of the Act please see the end of this bulletin or the Act.

On the basis of that simple formula for residential properties, you could put this in your Excel-like spreadsheet and get the right answer (based on the calculation proposed on the government web page):

=IF(B4<=55000,(B4*0.005),IF(B4<=250000,((B4*0.01)-275),IF(B4<=400000,((B4*0.015)-1525),((B4*0.02)-3525 ))))

Where the B4 cell holds the actual selling price of the residential property. An example output might be:

Price $500,000.00
Land Xfer Tax $6,475.00

Easy enough to figure out, but don’t forget it is there! If you are buying a  $1/2 Million dollar house $6475 may seem like chump change, and if you think so, please stroke me a cheque for that amount, and see how it feels then.

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Property Tax: Housing Bubble’s Lamprey

After yesterday’s post on Financial Psychology of Money, there was a good comment on how Property Taxes can add an interesting twist in my statement: ” …  the only time the price of your house matters is when you sell it … “.

Property Taxes (or millage tax), is the only tax where you have to pay a percentage of the “perceived” value of something. If you bought your house for $100,000, that year, your taxes will be based on a valuation of $100,000 (or at least it should, sometimes they try to “zap” you with a higher rate, however you can dispute that valuation, because the value of the house that year was $100,000). After that you are at the mercy of the firm doing the “valuations” of your property (and the jurisdiction inflicting the tax on you).

Say my neighbour sells his house for 100% more than what I bought mine for, many times, your “valuation” will increase because of this sale.  If you feel your valuation is too high, you can try to appeal it, fight it, or whatever and sometimes it works, but a lot of times it does not (but fight it anyhow!).

Property Tax is the lamprey that can grow fat on a housing  bubble, there are countless stories of fixed income retirees in Vancouver having to sell their houses because they could not afford their property taxes (due to astronomical valuations). Many times these are people who paid their house off, however, they cannot afford the property taxes.

What is a lamprey?

While lampreys are well-known for those species which bore into the flesh of other fish to suck their blood, most species of lamprey are not parasitic and never feed on other fish.

A Lamprey’s Mouth The Ultimate Life Sucking Interface

Yes, the lamprey gets fat on its host, much like a property tax sucks the life out of you because your house is appreciating in valuation. Yes, I am being a bit facetious, and ranting, however I do stand corrected the price of your house does matter in terms of how much property tax you must pay (unfortunately).

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Garbage and Green Bins in Ottawa

The City of Ottawa during it’s latest budget deliberations came up with yet another way to stop the rate increase from being astronomical to only being big, by proposing that Garbage Collection for the city (which is currently done weekly), be moved to a bi-weekly pick up, thus saving money only having to pick up every other week (I believe they also considered twice a month garbage pick up, but decided against that). Currently Ottawa has a Green Bin program for kitchen waste and such as well as a recycle bin program for paper, metals plastics etc.,.

The Green Bin program “success” seems to be behind the reasoning to move forward with curtailing garbage pick up. Evidently it is much cheaper to pick up Green bins than it is to pick up the garbage (not sure of the numbers, I am sure someone can quote this for me), so thus if we move the green bin pick up to being weekly and cut the garbage pick up we will save everyone $28 a year on their Property Taxes (at least I think that is what the estimates were).

Colour me very skeptical on these alleged savings (the numbers don’t add up in my head), but let us assume that this is not a big shell game switcheroo and we will end up paying the same at the end of it all.

The first folks to voice concern were parents with infants and lots of disposable diapers, you can’t expect that waste to wait two weeks in 90 degree heat over the summer do you? Evidently the City is thinking of doing something about this, although it is not clear what (no soiled disposable diapers will not go in the green bins), there might be a special pick up or drop off program.

Let’s wander through some of the other interesting consequences of this decision (needless to say I will be hitting the downside, feel free to comment about all the good things, if you wish):

  • Will there will be lots of more in the Green Bins can for the new pick up system deal with? Will there be much heavier bins
    RESP, RDSP, RRSP

    A Green Bin

    every week? That remains to be seen, also with all this extra bulk to lift, can the current contractor deal with the extra load? Guess someone has thought of that (I hope). This is where I think the economics will show that in fact it costs about the same.

  • Can the Green Bin system deal with a lot more “illegal” things appearing in the bins? It is human nature to assume folks will be accidentally (or possibly with purpose) putting things that should not be in the Green Bins out with the weekly pick up. This adds more responsibilities on the Bin Pick up crew and at the back end where the waste must be sorted. Sorry folks, this is going to happen whether you like it or not, let’s hope not too much, but more waste, means more mistakes.
  • If the by-law folks enforce the rules well enough and make sure no contraband trash appears in the Green Bin, will we see “arbitrary dumping” of trash into ditches? Maybe. Will folks start bringing trash to work and have them deal with it? Maybe. Will folks be dumping garbage at commercial sites (e.g. restaurant garbage bins, mall bins, etc.,)? Maybe. Especially if they start limiting the amount of garbage you can put out, this will happen.

Will this change really save money? I think it will make folks much more cognizant of the Green Bin program and it will get a lot more of the Kitchen scraps that may be going to the landfill because folks are too lazy to use their Green bins, but will it really save money for the City of Ottawa?  As I said, I am very skeptical, I really don’t see where the “savings” will come from.

What is happening in other Canadian Cities? Please comment and tell us your Trashy story.

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Property Tax Redux

Alternate Property Tax Model

So after whining about my Property Taxes, I think I have come up with a simple(r) model for Property Tax valuations which could make lives simpler (simpler for me).

Simply put, your Property Tax is set when you buy your house. When the price is set, that is what your property taxes will be based on, until the house is sold again.

Sounds easy doesn’t it? The municipalities could tweak it so that they could add an inflationary increase each year, so that their incomes could slowly increase, and maybe a caveat on the valuation at sale (i.e. the City can have an independent body valuate the house at sale time and then base property taxes on that value), in case folks try to sell houses for $1 or the like.

Advantages?

  • Property tax increases would be limited year over year to only an inflationary increase, better than current system where Property Tax valuations can wildly vacillate (mostly up)
  • If someone stays in their house for a long period of time, they will not end up having to sell their house because their neighbourhood suddenly went “up scale” and their Property Taxes have sky rocketed (as in Vancouver), good for Fixed Income seniors.
  • May cause a boom in contracting work for upgrading houses, since it’s value will not increase unless it is sold (i.e. why move to a bigger house, when it ends up being cheaper to add a room to my current home)
  • Less yearly paper work with new valuations and warning home owners of the pending change.

Disadvantages?

  • Municipalities incomes may not be as large as they need them to be and it may force them to cut services (to run a balanced budget)
  • Tom-foolery and shenanigans are still possible given there can be manipulations of these systems, like we have seen with rent controlled properties and such.
  • Might throw cold water on the housing market, with folks maybe staying in an older house, instead of buying a brand spanking new one, because it costs more (and the older house has been inhabited in for a while)

Opinions? Should I write this one up and present it to the Ottawa City Council as a progressive and exciting way to move forward in the 21st century? Maybe if I add a Green element to it, it might be an easier sell (it will help the environment, because it will slow housing developments)?

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Property Taxes: A Stream of Consciousness

Cause he’s the Tax Man

This time of year is magical in terms of the sheer volume of money that seems to go for taxes in my household.

First we have the CRA and Income Tax coming due in April, which causes lots of excitement as I mentioned in How Do You Do Your Taxes?, and I am happy to say that this part of the Magical Tax Mystery Tour is over, with my E-filing this past weekend. I like to get those in early, especially when the government owes me money (and even if you owe them money, you don’t have to pay until the last possible day).

The second exciting part of this Tax Trek is Property Taxes that I owe to the City of Ottawa. Ottawa’s system has a couple of ways you can pay and I choose to make the two payments they ask for in March and May (you can pay monthly if you wish as well), and this makes for the right hook portion of the tax combination punch I receive this time of year.

Property taxes have continually gone up since I started owning a house about 13 years ago, as various levels of Government off-load their own service load and down load them to the municipal governments, but also the City of Ottawa is an interesting story all on its own with Amalgamation and the fact that the City of Ottawa keeps growing (and thus its thirst for Tax Funds is never quite satiated).

Given I seem to live in my finances in this time of year, I always end up noticing interesting points that these taxes bring into focus for me:

  • I pay more in Property Taxes than I do in Mortgage Interest on my house. I guess this is a good thing, but this may change when interest rates go up.
  • With Income Tax there is always a chance that I will get a refund from the Government, but this is never going to happen from my Property Taxes (which explains why I seem to loathe Property Taxes more than Income Taxes).
  • Property Taxes are the only tax on the Perceived Value of something, as opposed to actual value or income. If I sold my house for $1 tomorrow, but the City said it was in fact really worth $1,000,000.00 they would be right and that would be what the new owner of my house’s valuation would be. I have seen many people successfully argue that their property valuation was too high, but it is a tedious and slow process (and you might end up with a higher valuation if you are not careful).
  • If I wanted to pay more Property Tax, in exchange for more services (say better street lighting, better sewers or a fire hydrant near-by), I would not be allowed, and there is no way for me to buy these service improvements from a private firm either (given the city has a monopoly on these services).
  • Even though a portion of my property taxes goes to the School board of my choice, this does not guarantee my child an education with that board. If they feel my child is not suited to their service (behavioral, or because they have a learning disability or other reasons) they can refuse me this service, and I have little recourse (but I still must pay the fees). That one is always an interesting discussion point to bring up at a party that seems to be too quiet.

I don’t think there is anything too deep in those points, just some stuff I noticed about my property tax bill.

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