How to calculate the Welcome Tax: Practical Guide
Last updated on June 18, 2024
A few months after buying a home, the new owners receive a letter from their municipality. And, surprise! The mysterious envelope gives the details about the property transfer tax, better known as the “welcome tax,” that must be paid.
It’s best to plan in advance for this expense because it can easily be in the thousands of dollars and is payable within 30 days of billing. Find out how to calculate this tax in a few simple steps:
Contents:
- What is the real property transfer tax?
- How to calculate the welcome tax
- When to pay the welcome tax
- Discover the 3 payment methods available
- Exemption or refund: How to save the welcome tax
- A compulsory step
What is the real property transfer tax?
Welcome tax, or property transfer duties or property transfer tax all refer to the same thing: a tax collected by Quebec municipalities whenever the title to a property on their territory is transferred to a different owner. Since 1976, this tax has allowed cities to take in additional revenue.
Under the Act respecting duties on transfers of immovables, this tax applies to the sale, assignment, donation or exchange of a building or piece of land. It is only payable once, in one lump sum.
Just hearing the name of this tax can make people roll their eyes. Who wants a bill for thousands of dollars to “welcome” them to their new digs? It’s interesting to note that the name of the tax has been falsely attributed to former minister, MNA and judge Jean Bienvenue, according to historian Frédéric Lemieux (in French). In fact, the name “welcome tax” was adopted to soften the harsh reality of having to pay to move into a new home.
How to calculate the welcome tax
New homeowners shouldn’t expect to pay the same amount from Montréal to the Gaspé.
Determining the tax base
The tax base used to calculate the welcome tax corresponds to the highest of the following amounts:
- The selling price of a new home (before QST and GST)
- The amount stipulated for a building transfer, that is, the price listed in the deed of sale
- Estimate of the property’s market value (using the value on the assessment roll, multiplied by the comparative factor in effect in the municipality at the time of the transfer)
For this last option, the comparative factor is unique to each city and is reassessed every year. It is used to bring the amount up to the market value.
For instance, here are the comparative factors for the city of Montréal over the last few years:
- 2024: 1.10
- 2023: 1.00
- 2022: 1.18
- 2021: 1.06
So, the market value of a property whose municipal assessment is $280,000 will be estimated at $308,000 for the year 2024 in Montréal ($280,000 x 1.10 = $308,000).
Calculating by value brackets
Once we know the tax base, we have to calculate the percentages by value brackets for the specific municipality. Every city sets its own tax rate. For instance, the first bracket will be taxed at a rate of 0.5%, while a higher bracket can be taxed at up to 4%.*
*Municipalities have the power to set a rate higher than 1.5% on any bracket over $500,000. However, the rate cannot go above 3%. Since several cities have made use of this right, it is preferable to contact them directly to get accurate information.
In Québec City*
- 0.5% on the first $58,900
- 1% on the portion from $58,900 to $294,600
- 1.5% on portion from $294,600 to $500,000
- 2% on the portion from $500,000 to $1,000,000
- 2.5% on the portion from $1,000,000 to $2,000,000
- 3% on the amount exceeding $2,000,000
*Applicable for the year 2024.
In Laval*
- 0.5% on the first $58,900
- 1% on the portion from $58,900 to $294,600
- 1.5% on the portion from $294,600 to $585,200
- 2% on the portion from $585,200 to $1,170,500
- 3% on the portion exceeding $1,170,500
*Applicable for the year 2024.
In Montreal*
- 0.5% on the first $58,900
- 1% on the portion from $58,900 to $294,600
- 1.5% on the portion from $294,600 to $552,300
- 2% on the portion from $552,300 to $1,104,700
- 2.5% on the portion from $1,104,700 to $2,136,500
- 3.5% on the portion from $2,136,500 to $3,113,300
- 4% on the amount exceeding $3,113,000
*Applicable for the year 2024.
Sample calculation for the transfer tax in Montréal in 2024
On a taxe base of $700,000
- $58,900 x 0.5% = $294.50
- $235,700 x 1% = $2,357
- $257,700 x 1.5% = $3,865.50
- $147,700 x 2% = $2,954
Sum of all brackets: $294.50 + $2,357 + $3,865.50 + $2,954 = $9,471.00 payable
When to pay the welcome tax
The transfer tax is billed by the municipality shortly after the notarized act is finalized. Buyers generally receive a notice of payment three to six months after making their purchase. The amount must be paid in a single payment within 30 days of the bill being sent.
Discover the 3 payment methods available
How new property owners must pay the welcome tax can vary from city to city. It’s important to check the reference number and due date on the bill, as well as the information on how to pay. If the bill isn’t paid within the deadline, there will be interest added to the amount.
1. Online or at the counter of a participating financial institution
2. In person (debit, cheque, money order, cash)
3. By mail (cheque or money order)
Exemption or refund: How to save the welcome tax
Every property transfer is subject to the transfer tax, aside from a few exceptions:
- If the value of the immovable good is less than $5,000
- If the transfer takes place in a direct line of succession (either up or down): parents and grandparents, or children and grandchildren
- If the transfer is between spouses (married, in a civil union, common-law)
The new owner must pay the welcome tax if they buy back a portion of the property from their former spouse. A transfer between siblings will also be taxed. And a property inherited from an aunt will also be subject to the transfer tax.
Special duties and penalties
When there is a change of owner, the assessment roll must be modified. And even if the transaction is exempt from the transfer tax, a special duty of up to $200 could be charged by the municipality.
The Act respecting duties on transfers of immovables also sets out penalties for non-compliant successive transfers. To avoid this type of situation, generally, a two-year possession time is required between each transfer.
Refunds for homeownership accessibility
Some municipalities offer to refund the property tax, either in whole or in part, if certain eligibility criteria are met. The city of Montréal has a Home Purchase Assistance Program to help young families become homeowners.
A compulsory step
Regardless of what name we give the welcome tax, paying it is something new owners must do, unless they’re exempt. Future buyers should get information from the municipality to calculate the amount they will have to pay. Once they become homeowners, the bill can come quickly and can be a shock if it wasn’t planned for.
Did you know that the team of notaries at DuProprio can answer your questions about property transfers1? Watch our webinar to learn about our services and about selling broker-free:
