Land Transfer Tax should be used to fund transit

Andy headshotFrom PMA Brethour’s July 2015 newsletter

EVER WONDERED what that loathsome land transfer tax is being used for?

Ontario has generated nearly $1.4 billion in revenue each year for the past four years through the tax, which buyers must pay upfront and in full when they close on a home purchase.

The City of Toronto, which introduced its own Municipal Land Transfer Tax in 2008 under former mayor David Miller, generated about $350 million in 2014 from the transaction fee, which when combined with provincial tax adds about 4 per cent to the price of an average home in the city. That’s an extra $24,000 if you’re buying a $600,000 property, a hefty chunk of change that has to be forked over, in its entirety, at closing. Land transfer taxes cannot be added to a mortgage.

It’s worth noting that no other municipality has land-transfer taxation powers like Toronto’s. Homebuyers here have the dubious distinction of being the only ones in Ontario to be double-taxed. Not very world class.

Combined, provincial and Toronto land transfer taxes generate $1.75 billion in revenue for government each year. And in a buoyant Toronto housing market that’s seeing property values continue to soar, land transfer taxes are guaranteed cash cows.

There’s just one small problem: taxpaying homebuyers have no idea what all these land transfer taxes are being used for. It ends up feeling like just another cash grab, a huge ATM fee that does nothing to help make homes more affordable for purchasers, particularly first-time buyers whose finances are already stretched to the limit.

With no explanation as to what becomes of the land transfer tax proceeds, then, we can only assume the money flows into the government’s general revenue coffers, and it’s anyone’s guess what it ends up funding from there.

Meanwhile, the province and Toronto claim to be constantly scraping for money to allocate toward the city’s transit infrastructure, which despite recent funding commitments remains the greatest area of need in Canada’s largest metropolis.

David Miller’s successor, Rob Ford, suggested abolishing the Toronto land transfer tax. And both the Toronto Real Estate Board and Ontario Real Estate Association have been pushing for years to get rid of it, arguing it does far more harm than good to the city’s economy by hampering home purchases.

Here’s a better solution: rename it the land transit tax, and dedicate the proceeds—or at least a significant portion of them—to funding Toronto transit.
Obviously the province’s $1.4 billion in transfer-tax revenue cannot be entirely allocated to Hogtown (we don’t want to incite another Upper Canada rebellion here).

But real estate transactions in this city represent 60 per cent of the overall Ontario tax yield. So that could translate into $850 million in Toronto’s new land transit tax. Combined with the city’s $350 million in land transfer tax funds, it means there would $1.2 billion available for transit in Toronto. Just imagine the possibilities.

A high quality transit system is essential to the city’s sustainable growth, and a land transit tax would be a great way to pay for it. But make no mistake: this is also about ensuring government transparency and accountability to taxpayers.

Rather than leaving us to assume that land transfer tax proceeds disappear into a general revenue black hole, with no clue as to what they’re being used for, a land transit tax would give folks a clear sense of what they’re being dinged for when they buy a home. And most would likely have little issue paying, knowing that it’s helping make Toronto a better city.

A land transit tax won’t cost taxpayers any more than what they’re paying right now. And the best part of all is it would mean an end to the non-stop debate over Toronto transit funding. A dedicated, fixed annual budget could be created based on the new land transit tax, and then bam! Suddenly plans that have been on the drawing board for decades can at long last come to fruition.

Downtown relief line, anyone?