Most taxes are contentious. But for some, like Toronto’s land transfer tax, simply calling it contentious would be an understatement.
Since coming into effect in 2008, the real estate industry members have called the Toronto municipal land transfer tax (MLTT) unpopular, unfair and unpredictable. With the election of Mayor Rob Ford in 2010, whose campaign included a pledge to kill the tax, some may have thought that it was only a matter of time before it was shelved, like the equally divisive vehicle registration tax. But that did not happen.
With the passing Toronto’s 2014 $9.6 billion operating budget (the last budget in Ford’s term) in late January, Toronto city council did not even move to reduce it.
The MLTT affects all property purchases within the city. Toronto is the only Ontario municipality with the power to levy this charge, thanks to the 2006 City of Toronto Act — something the real estate industry has pointed to time and time again as unfair. Many opponents also call it a double tax, seeing that all Ontarians must also pay its provincial land transfer tax counterpart. But its defenders argue that the MLTT offsets the need for much higher property tax rates year-after-year.
The MLTT is calculated using graduating percentages based on the sale price of a home. A house closing at $500,000 would have a total MLTT charge of $5,725. City staff originally projected that the 2014 revenue from collecting this tax would be about $335 million.
But unlike Toronto’s regular property tax, which holds steady even during market fluctuations since it is calculated based on a property’s assessed value, the MLTT is directly tied to the health of the real estate market.
“Two main things are volume of sales and transaction, and the average price of the properties that are changing hands,” Rob Rossini, Toronto’s chief financial officer, told city councillors during the budget deliberation.
Since Toronto creates its budget without knowing the actual income from the MLTT — and since the city cannot by law run a deficit — staff usually aims conservative and includes a 10 per cent buffer zone in revenue projections.
However, the final annual revenue has historically come in well above staff’s predictions. 2012’s projected revenue of $240 million was well short of the $345 million the city ultimately took in.
To pay for services in this year’s budget, Toronto councillors upped staff’s projected 2014 MLTT revenue in budget and executive committees, before the projection finally settled at $349.6 million through a motion by Deputy Mayor Norm Kelly during council. Staff had previously explained that projecting revenue at anything above $350 million would not be wise.
In fact, Rossini said that the years of the tax outperforming projections might be coming to an end.
“We’re at the height of a real estate and construction boom,” he said. “So we think we’ve plateaued.”
With this in mind, councillor Doug Ford likened boosting the projected MLTT revenue to betting on the stock market. Were the housing market to crash and the MLTT underperform for once, the city would be left scrambling trying to make up the needed cash.
The inherent volatility of the MLTT is something that the real estate industry has pointed to in its efforts to kill the tax.
“The proposed budget that city council will be debating relies on this unpredictable revenue more than ever before,” Dianne Usher, president of the Toronto Real Estate Board (TREB), said in a statement released just before the 2014 budget was set. “Torontonians deserve better than that and city council should be focusing on predictable budgeting options and cutting the land transfer tax instead.”
First-time buyers currently receive a rebate up to $3,725. In their statement, TREB called for Toronto to remove the tax on the first $400,000 value of a home for all buyers. It also said that the rebate for first-time buyers is failing because it does not keep pace with inflation.
“The home buying tax has become more and more regressive as home prices have increased,” Von Palmer, TREB’s chief government and public affairs officer, said in a statement. “Someone purchasing a home priced below the city’s average price is being charged the highest tax rate. That’s not right.”
TREB also proclaims that were the MLTT to be cut, the related increase in home sales would offset the lost tax revenue.
But Deputy Mayor Kelly disagreed.
“The sale of property anywhere in the GTA generates revenue for local municipalities,” he said at council. “And while we may have a land transfer tax, if they (buyers) look in the 905 and look at the developments charges they charge out there, they’d see that collectively, their tax burden in the 905 is larger than ours through the land transfer tax.”
Toronto in fact features the lowest average development charges in the region, with many surrounding municipalities charging rates two times as high.
There was a last ditch effort by the Fords to reduce the tax, saying that the surplus should “go back” to the taxpayers, and not, as Kelly’s ultimately successful motion put forth, be invested towards services like fire safety and student nutrition programs.
Councillor Doug Ford submitted a motion to reduce the MLTT by five per cent. It failed.
In the end, despite some councillors agreeing with some of the real estate industry’s arguments in principle — saying that the MLTT is not stable and that if possible they would like it to be reduced — many appear to see it as an integral part of Toronto’s revenue, and a requirement to pay for needed services.
Toronto’s budget chief, Councillor Frank Di Giorgio, who previously attempted to reduce the MLTT at committee, said it bluntly as council was nearing the end of its debate: “We will never get rid of the land transfer tax.”