How not to pay the welcome tax?

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Anyone wishing to become a homeowner must be prepared. The payment of various taxes is to be expected following the purchase of a house. Some of these contributions are due in the months following the purchase of the property, such as the welcome tax. Find out from your mortgage broker the different situations in which an exemption is applied.

What is the welcome tax?

The real estate transfer tax is a tax contribution imposed by cities and municipalities since 1976. This provision is made to allow them to have an additional source of revenue. The collection of this tax has been mandatory, especially since 1992.

The real estate transfer tax – also known as the welcome tax – refers to the amount that a buyer must pay to the municipality following a property transfer. A payment notice is sent to the new owner between the third and sixth month following the transfer. If you are in this situation, you have 30 days to pay this tax. After this period, interest may be added to the amount initially notified.

How is the welcome tax calculated?

The tax base is the value used to calculate the real estate transfer tax. It is represented by the higher of:

the municipality’s estimate of the property’s price ;
the actual purchase price of the property;
the market value of the property at the time of transfer.

For the year 2022, the calculation of the amount payable is based on the following rates:

tax base less than or equal to $53,200: 0.5% ;
tax base between $53,200 and $266,200: 1% ;
tax base greater than or equal to $266,200: 1.5%.

By law, when the value of the property exceeds $500,000, municipalities are free to set the tax rate. The rate must not exceed 3%.

The rates applied are different for transfers of property located in:

tax base less than or equal to $53,200: 0.5% ;
tax base between $53,200 and $266,200: 1% ;
tax base between $266,200 and $532,300: 1.5% ;
tax base between $532,300 and $1,064,000: 2% ;
tax base between $1,064,000 and $2,059,000: 2.5% ;
tax base between $2,059,000 and $3,000,000: 3.5% ;
tax base over $3,000,000: 4% ;

How to legally avoid paying the welcome tax?

Municipalities are required to collect real estate transfer tax for any transfer of real estate located on their territory. The law also provides for a few exceptions allowing a purchaser to avoid paying the welcome tax. In most cases of exemption, the transfer takes place between members of the same family or does not involve a major change in control of the property. The following are the most common instances in which exemption is allowed:

Transfer in the direct ascending and descending line.

A person may be exempt from paying real estate transfer tax if he or she is acquiring property from a family member with a direct ascending or descending relationship. For example, when a grandfather gives or sells his house to his grandson, no welcome tax is due regardless of the value of the property. This exemption does not extend to the transfer of property between a brother and sister.

Transfer between spouses

An exemption is also available in the case of a transfer between spouses. For married couples, the exemption applies only to transfers that took place before a possible divorce was finalized. After a divorce, real estate transfer tax applies to all transfers between former spouses. In the same way as legally married spouses, common-law spouses also have the possibility of benefiting from the exemption provided that they have been living together during the 12 months preceding the transfer of the property.

A tax basis of less than $5,000

By law, a property with a value of less than $5,000 is exempt from the payment of real estate transfer tax. This provision applies, for example, in the case of a transfer of land with a small area.

Transfer between a shareholder and his company

No welcome tax is required to be paid to the municipality if the two parties making the transfer are the shareholder of a company and the company itself. The only condition required to benefit from the exemption is that one of the parties must have at least 90% of the shares of the other party.

The welcome tax is therefore a tax contribution required by a municipality following a transfer of property. An exemption is possible in certain specific cases. Contact your mortgage broker to find out what the possibilities are for paying or not paying this tax.