If you deal in real estate, you will have to pay a variety of taxes. The huge number of taxes and their names can often leave investors and agents overwhelmed. One such tax is the Welcome Tax.
In this article, we’ll talk about the Welcome Tax and how to calculate it.
A land transfer tax called the Welcome Tax in Quebec. Where did it come from and when does it apply?
The provincial government took a major decision in 1976 and stopped sharing provincial sales tax revenues with municipalities.
This gave birth to a new tax known as the Welcome Tax that was initially called ‘Transfer Tax’.
The Welcome Tax applies to all cases of property transfer. The buyer has to pay the amount to Quebec municipalities regardless of his or her link with that specific municipality.
Understanding the Welcome Tax Calculation
The process of calculating the welcome tax can be quite technical. The highest value of the following is considered when calculating the Welcome Tax:
- The amount or value of the property mentioned on the sale deed
- The amount that was actually paid by the buyer to the seller excluding General Sales Tax (GST) and Quebec Sales Tax (QBT)
- The fair market value of the property according to third-party (government) evaluation
In most cases, you will end up with three different values. The highest of the three values will be used to calculate the Transfer Tax.
The figure will be calculated based on this chart:
- $0 to $50,000 = 0.5 percent
- $50,000 to $250,000 = 1 percent
- $250,000 to $500,000 = 1.5 percent
- $500,000 to $1,000,000 = 2 percent
- $1,000,000+ = 2.5 percent
Let's say you live in Montreal and your taxable amount is $580,000. Now, use this formula to calculate your Welcome Tax:
- $50,000 x 0.5% = $250
- $200,000 x 1% = $2,000
- $250,000 x 1.5% = $3,750
- $80,000 x 2% = $1,600
Your total tax: $7,600
There is a small difference between the amount of tax you pay in Montreal and in Quebec provinces. This is how the welcome tax is calculated outside of Montreal:
- $0 to $50,000 = 0.5 percent
- $50,000 to $250,000 = 1 percent
- $250,000+ = 1.5 percent
Still not sure about the tax? Get in touch with us today and we’ll answer all your questions.
Are there any exemptions to the rule? Yes, You will not have to pay the welcome tax in some cases. Here are 4 exceptions to the rule.
1. You will not have to pay the amount if the transfer takes place between family members. In simple words, there will be no such tax if the transfer is between the owner and a direct ascending or descending line, i.e: grand parents and children.
2. In some rare cases, there may be no taxes in case of transfers between spouses as well. There will be no taxes if the transfer is completed before a divorce. Moreover, common-law partners also do not have to pay the welcome tax if they lived together for a year. The transfer, however, must be completed within 90 days of separation.
3. You will not have to pay a tax if the property gets transferred between the owner and a company controlled by the same person. Indeed, there is no such tax when an individual transfers a property to a company he or she controls. To qualify, the person must hold at least 90% of the company's shares and have a right to vote.
4. Lastly, you will pay no taxes if the value of the property is less than $5,000.