Everything Homebuyers Need to Know About Property Taxes in Canada

Posted by Justin Havre on Monday, June 10th, 2019 at 8:21am.

A Homebuyer's Guide to Paying Property Taxes in CanadaWhen buying a home, people need to know about their property tax obligations at every stage of homeownership. Without this knowledge, homebuyers can get caught off guard as tax payments come due. To handle all property tax payments with confidence, homebuyers can fill their minds with information about paying property taxes in Canada early and often. This guide aims to help homebuyers learn all they need to know about property taxes before buying a home.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

New Builds Require an Upfront Tax Payment

When homebuyers elect to purchase a newly-built home, or have one custom built, they must cover an upfront tax payment, called the Goods & Services Tax (GST). While many new home builders integrate this fee into the sales price of the property, some do not. If homebuyers purchase a home without the GST in the sales price, they will need to make this property tax payment by the closing date.

Homebuyers can typically qualify for a 36% rebate on the GST if they meet a few eligibility restrictions. First and foremost, they must purchase the home for less than $350,000. They must also intend on using the property as their primary residence. If they meet these qualifications, they can receive a rebate of up to $6,300.

If the purchase price of the home is more than $350,000, but less than $450,000, homebuyers can receive the rebate only if they plan to rent out the residence. The tenants must stay in the rental for at least 12 months for the property owner to qualify.

Buyers Sometimes Have to Cover Prepaid Property Taxes

As a homebuyer, it is important for people to know that they may have to cover prepaid property taxes upon buying a Canadian property. The current homeowners have the option to pay their property taxes in advance for the year. If they make this choice, and then sell their home, they will receive a refund for the remainder of the year. Their refund check comes to them at closing of the property, leaving the balance due.

Homebuyers must then cover that balance to ensure the property remains up to date on all tax payments. They can work with their lenders to find the best payment arrangement, whether that means paying it upfront or wrapping it into the mortgage premium.

Taxes on Mortgage Default Insurance May Apply

When buying a home with a low down payment, taxes on mortgage default insurance often apply. Homebuyers can often elect to pay a down payment of less than 20%, but with that decision, lenders put mortgage insurance on the loan to protect from default. This insurance payment wraps up into the mortgage payment, increasing monthly premiums. With this arrangement, they do not have to directly pay their mortgage insurance each month, however.

For homeowners in Quebec, Manitoba and Ontario, the addition of this insurance payment means more taxes – and they do need to be paid upfront. These taxes range from 7 to almost 10% of the annual mortgage default insurance premium amount. Homebuyers must make this tax payment by their closing date to ensure their purchase goes through as expected.

Tax Rates Vary Considerably Across Canada

The property tax rates in Canada vary quite a bit from region to region. In fact, the gap between the highest and lowest Canadian property taxes is quite shocking. In Vancouver, homebuyers can expect to pay just over $1,200 in property taxes for a $500,000 home, while those in Hamilton have to pay a whopping $6,000 in taxes for a home of the same value.

Therefore, it is important for homebuyers to accurately pinpoint the property taxes for the region in which they intend to make a home purchase. They can then calculate their total sales taxes for the year, which goes a long way in creating a detailed budget.

Lenders Will Wrap Property Tax Payments in the Mortgage

When buying a Westbank Centre home in Canada with a mortgage, the lender will often wrap property tax payments into the premiums due each month. This ensures that property owners can pay off their taxes slowly while remaining in compliance with their local rules. The lender keeps the insurance premium in escrow, authorizing payment when the taxes come due.

Alternatively, homeowners can pay their property taxes upfront each month with a single cash payment. They can rest assured that if and when they elect to sell, they can receive a portion of that year's upfront payment back as a refund. Their monthly mortgage premiums will decrease without the prorated property taxes adding to the total.

With the right amount of knowledge about property taxes, homebuyers can move through the purchase process with confidence. They can then use that knowledge to keep their property in compliance with all the tax rules, year after year.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

Justin Havre

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