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While most business owners are accustomed to paying corporate, personal, and sales taxes, some are not as familiar with several lesser known taxes that can significantly impact the bottom line of real estate industry entrepreneurs. Understanding and planning for these largely “hidden taxes” can help your business achieve its targets. Let’s take a look at the top most common “hidden taxes” in the real estate industry:
1) Land transfer tax nuances
Most people are familiar with the basics of Land Transfer Tax (“LTT”). LTT is based on the amount paid for real property (or fair market value in certain situations), and is paid by purchasers in Ontario upon the closing of the purchase transaction. However, some are not aware that LTT must be paid when property is transferred from a corporation to a related corporation that is owned by the same person. This type of transaction is often part of a tax planning strategy and can attract these unanticipated hidden taxes.
In addition, purchasers of properties located in Toronto actually pay two LTT’s, and more municipalities may add similar secondary land transfer taxes in the future.
Effective March 1, 2017, the incremental rates for municipalities other than Toronto are as follows[1]:
| LTT – Ontario except Toronto (where the land contains one or two single family residences) | LTT – Ontario except Toronto (All other properties) |
| First $55,000 – 0.5% | First $55,000 – 0.5% |
| $55,001 to $250,000 – 1.0% | $55,001 to $250,000 – 1.0% |
| $250,001 to $400,000 – 1.5% | $250,001 to $400,000 – 1.5% |
| $400,001 to $2,000,000 – 2.0% | Over $400,000 – 2.0% |
| Over $2,000,000 – 2.5% | |
| LTT – Toronto (where the land contains one or two single family residences) | LTT – Toronto (All other properties) |
| First $55,000 – 1.0% | First $55,000 – 1.0% |
| $55,001 to $250,000 – 2.0% | $55,001 to $250,000 – 2.0% |
| $250,001 to $400,000 – 3.0% | $250,001 to $400,000 – 3.0% |
| $400,001 to $2,000,000 – 4.0% | Over $400,000 – 4.0% |
| Over $2,000,000 – 5.0% |
2) Foreign buyers’ tax
As of April 21, 2017, foreign trusts/trustees, foreign corporations, and individuals who are not permanent residents of Canada will be charged a 15% tax on the purchase or acquisition of an interest in residential property within the Greater Horseshoe. This tax does not apply to refugees or immigrant nominees though, and a rebate is available if certain conditions are met.
3) Workplace safety and insurance board (WSIB)
Most businesses with workers or subcontractors must register with WSIB within 10 days of hiring an employee. WSIB coverage is mandatory in the construction industry and the real estate industry.
To calculate your WSIB premium, multiply your company’s annual insurable earnings by your premium rate and divide by 100. Rates within the real estate sector can be as low as under $1 and as high as $14.[2]
Your business must obtain WSIB clearance certificates from every business, contractor or sub-contractor you engage. This ensures that your suppliers are in good standing with WSIB, protecting your business from the liability of non-compliance. Clearances need to be renewed four times a year, and it is recommended that you keep your own record of each confirmation. To avoid penalties, you should be aware of the obligation to report any workplace incidents within 3 days, whether involving your own employees or those of subcontractors.
4) Employee health tax
Employer Health Tax (“EHT”) is a mandatory payroll tax paid by employers based on the total wages paid to their Ontario employee. Corporations (shared with associated corporations) with Ontario payroll in excess of $450,000 per year are required to pay EHT for every dollar of payroll exceeding $450,000 as follows:
| Total Ontario remuneration above $450,000: | Rate[3] |
| between $450,000 and 650,000 | 1.0% |
| $200,000 to $230,000 | 1.1% |
| $230,000 to $260,000 | 1.2% |
| $260,000 to $290,000 | 1.3% |
| $290,000 to $320,000 | 1.5% |
| $320,000 to $350,000 | 1.6% |
| $350,000 to $380,000 | 1.7% |
| $380,000 to $400,000 | 1.8% |
| Over $400,000 | 2.0% |
EHT is not an incremental tax, so when a higher threshold is reached, EHT must be paid at the rate found above for the entire payroll in excess of $450,000. Payrolls in excess of $5,000,000 (including associated corporations) do not receive the exemption of $450,000. Employers with annual payroll over $600,000 must make monthly EHT installment payments. Annual returns and any tax owing are due on or before March 15th of the following calendar year.
To learn more about the “hidden taxes” in your industry, contact one of our real estate services professionals or your Zeifmans advisor:
David Posner, CPA, CA, Partner dp@zeifmans.ca
Jonah Bidner, CPA, CA, Partner jb@zeifmans.ca
For more industry related topics, click here.
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[1] https://www.fin.gov.on.ca/en/bulletins/ltt/2_2005.html
[2] 2017 Premium Rates by Industry Sector
[3] Rounded to the nearest tenth. https://www.fin.gov.on.ca/en/tax/eht/index.html
This publication has been prepared for the use by Zeifmans LLP. The strategies, advice and technical content in this publication are provided for general information only. This publication is not intended to provide specific financial, tax, accounting or other advice for you, and should not be relied upon in that regard. Readers should consult with their professional advisor when planning to implement a strategy to ensure that individual circumstances have been considered properly and it is based on the latest available information. © Zeifmans LLP 2017. All rights reserved.
