After months of waiting, you are finally living in your dream home. You’ve paid the movers, the couch has been delivered and the new bath has been installed. You have no more planned expenses. Or so you think!

 

A few months after settling in, you receive an unexpected letter through the mail: your property transfer duties bill. Of course, you mustn’t forget to include this tax in your real estate purchase budget as it usually amounts to a few hundred dollars, or even thousands for a luxury property. Here is everything you need to know!

You will find the welcome tax bill in your mailbox approximately 3 to 6 months after meeting with the notary.
You will find the welcome tax bill in your mailbox approximately 3 to 6 months after meeting with the notary.

What Is It For?

Property transfer duties, or the welcome tax, first appeared in Quebec in 1976. It was introduced by the government so that it could stop redistributing part of the provincial sales tax to municipalities as they do not have the right to tax income and sales. Each new homeowner must fulfill this obligation. There can be certain exceptions, however.

The Exceptions

Whether you’ve purchased a condo, cottage or home, that the property is a new build or an already existing residence, you must pay the full tax amount to your municipality. High interest rates will be applied for non-payment if you miss the due date.

The most common exception is if you receive a property as a gift from a direct ascendant or descendant family member, such as your mother, grandfather or child. This means that if the property is gifted to you by your sister, you will have to pay the welcome tax because she is not considered to be “ascendant” kin. You will also be exempted (i.e. obtain a waiver) for a property transfer between common law or married spouses. But in this case, there is a condition: the two spouses must have been living at the same address for at least 12 months prior to the transfer and still meet the legal definition of a couple at the time of the transaction. A further exception is if the property’s value is less than $5,000. 

The amount for this tax is based on the price paid, not the property’s value.
The amount for this tax is based on the price paid, not the property’s value.

How Much Does It Cost?

It is said that the welcome tax is calculated based on the value of the property, but this is false. Rather, how much you owe the municipality is determined by how much you actually paid. So, if you offered a higher amount than the asking price for the home you were interested in, this is the amount the welcome tax will be assessed on, not the price the property was listed at.

Then, the amount is calculated following a scale of brackets. The more expensive your house or condo is, the greater the percentage for the welcome tax. For the first $50,000, the applicable rate is 0.5%. On the portion corresponding to the $50,000 to $250,000 bracket, the applicable rate is 1%. On the portion that exceeds $250,000, the applicable rate is 1.5%. However, it can be as high as 3% for homes purchased at over $500,000. To better understand how the welcome tax calculation works, visit the Association des notaires du Québec official website or contact the municipality where the residence you wish to acquire is located.

In any case, you must budget accordingly. There are tools online you can use to help you estimate what you will have to pay before you receive the bill.

When Must I Pay?

The delays vary by municipality but expect to receive a bill 3 to 6 months after signing the papers at the notary. From that point on, you will have 30 days to pay; otherwise, supplementary fees will apply. The tax can be paid through your financial institution or by visiting your municipality’s administrative offices.

When you make your next real estate purchase, don’t hesitate to ask your financial advisor for guidance so you can budget appropriately to avoid getting a surprise in the mail!