There’s a quote from Ben Franklin that is often used when it comes to the taxes we pay, where he says “in this world nothing can be said to be certain, except death and taxes”.

While we may wish it was otherwise, real estate is no exception to this saying, and we often have questions from clients about the tax implications for buying or selling real estate. Given that taxes on real estate are a bit of a misunderstood area, we thought we would clear up the confusion. Without further delay, here are the four things you need to know about taxes and real estate.

What’s a principal residence exemption?

If you live in a home and claim it as your principal residence, you are not responsible for paying any capital gains tax on the proceeds of the sale. If you use more than 50% of the home for personal use—even if you’re renting out part of it—you typically won’t owe any capital gains tax on the sale of the property.

There are some exceptions to that rule though! For example, if you’ve made significant structural changes to accommodate a rental unit or claimed depreciation (CCA) on it, the Canada Revenue Agency (CRA) may treat part of the home as a separate rental property. But generally, if it’s primarily your home and you’re not claiming it as a business asset, the full exemption still applies.

CRA’s own materials can be unclear, but most tax accountants will confirm this general rule. When in doubt, always check with a qualified tax advisor.

What about HST?

When it comes to HST, the big question is whether it is a new build or a resale properties.

When you buy a resale property (i.e., a home that isn’t brand new from a builder), you don’t have to pay HST on the purchase price.

However, if you buy a new build, HST does apply—13% in Ontario (which includes a 5% federal GST portion and an 8% provincial portion).

While that can be a bitter pill to swallow, there are rebates available:

  • On the GST portion, you can get back 36% of the GST paid, up to a purchase price of $350,000. Between $350K and $450K, the rebate gradually decreases, and above $450,000, there’s no rebate at all.
  • On the PST portion (Ontario’s 8%), the rebate is 75%, up to a maximum of $24,000, which applies to homes up to $350K–$400K.
  • A home bought for $449K still qualifies for a significant rebate; one at $450K gets nothing on the GST side. It’s a hard cutoff.

Important to note that if you’re buying a new build, always confirm whether the rebates are already included in the builder’s sale price. Many builders advertise the “net price,” assuming you’ll qualify for and assign the rebate to them. If you don’t qualify, you may be on the hook for that rebate amount after closing.

Are there really taxes on real estate commissions?

Sadly, the answer to that is yes, we do have to charge HST on the commissions for a real estate transaction. That isn’t particularly relevant for buyers, as in most real estate transactions, the seller pays the commission for both the listing agent and the buyer’s agent.

On the sale side, however, real estate brokerages are required to charge HST (13%) on their commissions. So, if the commission is 5%, the actual cost is 5% + 13% HST, which works out to 5.65% of the sale price.

This HST amount isn’t extra profit for the agent or brokerage—it’s collected and remitted to the government. Brokerages can claim HST on business expenses (input tax credits), just like other businesses.

Buyers don’t get away tax free though!

The biggest added cost when buying a property is the land transfer tax (LTT). This is a one-time tax paid by the buyer when the title is transferred. The amount varies based on the purchase price, and there are calculators online to help estimate it.

Note that if you’re buying in Toronto, you pay both the Ontario land transfer tax and a municipal land transfer tax, effectively doubling the tax.

For example, on an $800,000 property in Toronto:

  • Ontario LTT: $12,475
  • Toronto LTT: $11,725
  • Total: $24,200

Toronto is currently the only municipality in Ontario with the right to charge that additional Land Transfer Tax but other municipalities are absolutely eager to follow their lead. So far, the Ontario government has refused to allow it but it could happen at some point.

This must be paid at closing and should be included in your budget.

If you’ve got any other questions about taxes or want some help figuring out what you should budget for a purchase or sale – and need our help with that transaction – then don’t hesitate to get in touch!