Clients are sometimes  confused between  the Land Transfer Tax and the municipal property tax. Unfortunately they are two separate taxes that are part of your closing costs. They can be an unexpected shock when you get a call from your lawyer outlining the final amount of money you need to come up with for your mortgage. As I mentioned in a previous BLOG the Land Transfer Tax is a tax the government has put on when residential properties change hands and it is a flat percentage of the sale. 1% of the first $200,000.00  and 2% of the remainder. So this in itself can be a sizable amount. The Municipal Property tax is the yearly tax the local governments impose on the property to pay for local costs such as garbage pick up schools, fire protection, libraries , etc. This tax is based on a “mill rate” that your local council decides on. This mill rate is then applied to the assessed value of your home and that’s the tax you pay. Your taxes are affected by both the mill rate and the assessed value. There is nothing you can do about the mill rate but you can appeal the assessed value of your property.
I advise my clients about the municipal tax situation both for selling and buying a home. I don’t want any surprises for my clients.
The municipal taxes are usually due on July 01 of the tax year. So in other words, up until July 01 of the year you have been accruing a tax deficit of sorts. When you pay your taxes on July 01 you pay them for the whole year so now you have a credit, right!!. So lets assume you sell your home with an adjustment date of May 30. This means you are responsible for the municipal taxes for the time you lived in the home or 119 days. When the lawyers sit down and decide on the adjustment figures they find out how much the taxes are probably to be( if not already issued) and they then prorate the amount. So for example if your taxes due were $3344.00, that works out to 3344/365 or $9.16 per day. You lived in the home for 119 days so you will owe the new owners 119x$9.16 or $1,090.04 which your lawyer will credit to the new owner from the proceeds of the sale.
OK, now lets say you sell your home after the taxes are paid. Then you get the credit instead of the buyer. Lets assume the same home sold in September with an adjustment date of Sept 23. You have paid taxes for 365 days but only lived in the home for 235 days. Let us use the same taxe figures of $3344.00 that means you owe $9.16×235 =$2152.60 but you paid $3344.00 so you get the adjustment credit of $1191.40.
As you can see this could be a nasty surprise if a buyer or seller was unaware of how their tax situation was calculated. If you need any more information please call me at the office 604 530 0231

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This entry was posted on Friday, April 16th, 2010 at 12:36 am and is filed under Keith Macdonald's Blog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.