May 5th - 2009

LEGALBEAT: Calculating LTT on a vacant lot

Do you know how land transfer tax is calculated on the purchase of a vacant lot which is subject to a construction contract?

Where a construction contract is entered into as part of the arrangement relating to the purchase of a vacant lot or lots, the land transfer tax would be calculated on the total cost of the lot plus the cost of construction.

Construction as Part of an Arrangement Relating to a Conveyance: Land is defined as including a structure to be constructed on land as part of an arrangement relating to a conveyance. This is in addition to land and any existing structures and fixtures.

Entering into separate agreements for the purchase of the land and the construction of a new home on it will not reduce the value of the consideration for the transaction if they are all integral to the arrangement relating to the conveyance. A good rule of thumb to determine if this is integral to the arrangement is to ask yourself: "if the purchaser doesn't enter into the agreement to construct the new home, will he or she still get the land?"

Where the conveyance of the vacant land is dependent on the construction of the home, then the arrangement is to buy the land and the structure to be constructed; both agreements must be taken into account to determine the true value of the consideration. Go to www.rev.gov.on.ca for more information.

MERV'S COMMENTS
If the buyer is dealing with a builder, and their deal is that the lot must be purchased from the developer for $100,000, and that is conditional on the buyer signing a building contract with the builder for $400,000, the land transfer tax is based on the entire $500,000.

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Ontario Real Estate Association

Jean-Adrien Delicano

Senior Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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