Thinking of a renovation project? There is a lot to think about. One thing to consider is what type of agreement you require with the contractors.
For various reasons some people decide to have a “handshake agreement” as a basis to deal with a contractor. Others have Lawyers prepare comprehensive written contracts. There is no one size fits all approach. But here are a few things to keep in mind:
- Handshake agreements are legally binding just as written contracts are. Once an agreement is in place each party has entitlements and obligations.
- If called upon to do so a Court will determine what the parties to an agreement intended, through written documents, conduct or, if necessary, what is reasonable in the circumstances.
- Written agreements can be amended.
Keep in mind what is important to you. For instance, if you need the work completed by a certain date you should have that stipulated in writing. The agreement should also stipulate the consequences for not completing the project on time. Written agreements provide certainty for both parties. They allow you to predict matters such as cost, the scope of what will be done and the manner in which the work is completed. As a general rule the more complicated the project, the more detail is required in the agreement. A properly organized written agreement is a good way to protect your interests and ensure you get what you bargained for.
As a first time home buyer you may be eligible to receive a partial refund of the Ontario Land Transfer Tax which is charged on real estate purchases. The First Time Home Buyers’ Tax Credit and the Home Buyers’ Plan are federal programs that provide assistance.
Land Transfer Tax (LTT)
The Land Transfer Tax is paid to Ontario government whenever there is a registered change of ownership of real property. While there are certain exceptions, the land transfer tax is generally payable whenever someone purchases a residential home. The amount of the LTT depends on the purchase price and the current tax rate rises progressively from 0.5% on the first $55,000 of the purchase price to 2% of the amount of purchase price which exceeds $400,000.First time home buyers get a LTT refund up to a maximum of $2,000. To qualify for this refund, you must not have owned a home anywhere in the world in the past and you must use your new home as your primary residence within nine months of the purchase. If you are buying a home together with someone that is not a first time home buyer, you can still receive half of the refund.
First Time Home Buyers’ Tax Credit (HBTC)
The First Time Home Buyers’ Tax Credit is available for the taxation year in which a first home is purchased. The value of this tax credit is $5,000. It can lower a person’s income tax by up to $750.
Home Buyer’s Plan (HBP)
Home buyers can withdraw up to $25,000 from an RRSP if the funds are used towards the purchase of their home. Although there are no immediate tax consequences at the time of withdrawal, the full amount must be repaid to the RRSP within 15 years. To qualify, the Purchaser must not have owned a home in the preceding four years.
I want to transfer my house to my son. Do we have to pay Land Transfer Tax on such a transfer?
As long as there is no consideration passing between you and your son, and the transfer is a gift to your son, there is no Land Transfer Tax payable.
What is Land Transfer Tax?
Land Transfer Tax is a tax levied by the Ontario government on every transfer of property, subject to some exemptions. The Land Transfer Tax is paid by a person acquiring the property at the time of a transfer. The amount of the Land Transfer Tax is based on consideration passing between a person disposing of property and a person acquiring it. Therefore virtually all purchases of real estate are subject to Land Transfer Tax.
Exemptions to Land Transfer Tax
The Land Transfer Tax is not payable when real estate property being transferred is a gift and there is no consideration passing between the parties. Assumption of an existing mortgage by person acquiring the property or giving a personal loan by person disposing of property to the person acquiring it is a form of consideration and therefore such a transfer would be subject to the Land Transfer Tax.
Transfer of property between married spouses pursuant to a separation agreement is also exempt from the Land Transfer Tax, regardless of the type and amount of consideration passing between the parties. There are some other exemptions under the Land Transfer Tax Act such as transfers involving trusts, transfers to a charity or transfers to a government organization.
First Time Home Buyer’s Rebate
First time home buyers may qualify for a Land Transfer Tax rebate of $2,000 if they have never owned a real estate property anywhere in the world. Further, a spouse of a first time home buyer cannot own any real estate at the time of purchase and must have disposed of previously owned property prior to becoming a spouse of a first time home buyer.
We are buying our first home. The bank insists that we add my father as a co-owner of the home since in order to qualify for the mortgage amount that we need to include both incomes. The entire down payment is coming from our savings and we will be making all the mortgage payments. I really don’t want to include my father. What are your suggestions?
Guarantor of the mortgage v. being registered on title as owner
Adding a person that is not going to be living at the property as a co-owner is generally not recommended, unless you are buying an investment property. You should talk to your bank whether it would be sufficient to have your father as a guarantor on the mortgage, rather than a co-owner.
If the bank still insists on your father’s ownership, there are ways to structure the co-ownership in order to protect everyone’s interest and to minimize your father’s exposure to any tax related consequences of owning a second home.
Joint Tenancy and Tenancy in Common
There are two ways how two or more individuals can own a real property together. They can either own it as joint tenants or as tenants in common. The main difference between the two is that people who own a property as joint tenants have a right of survivorship, meaning that if either one of them dies, his or her ownership share passes automatically to the other surviving joint tenants. This is in contrast with tenancy in common, which does not have a right of survivorship, meaning that the share of the deceased tenant in common becomes part of such person’s estates. With tenancy in common you can also specify a size of a share that each co-owner owns. For example, your father can own 1% share of the home and you and your spouse remaining 99% share, with all of you owning the home as tenants in common, to make sure that your and your spouse’s share becomes part of your estate rather than transferring to your father in case something happens to both of you.