Welcome to Your New Home! Understanding the Welcome Tax

Acquiring real estate comes with many additional costs! One of these, the welcome tax, officially called the property transfer tax, is often misunderstood by first-time buyers.

And yet, as it usually amounts to several thousand dollars, it represents a major expense to plan for in a budget. Thankfully, you only have to pay it once following the purchase.

What’s the Welcome Tax?

It’s a property ownership transfer tax levied by Québec municipalities as part of a real estate transaction.

Contrary to popular belief, the term “welcome tax” doesn’t come from the name of Québec Minister Jean Bienvenue who is commonly thought to have introduced this tax in 1976 (“welcome” being the direct translation of “bienvenue”). In fact, this tax was implemented by the Lévesque government elected that same year. Citizens soon dubbed it the “welcome tax,” an ironic joke about how the tax was a housewarming gift from municipalities. A sentiment new homeowners still share today!

How Is the Welcome Tax Calculated?

Me Marika Di Domenico, lawyer, explains that the tax involves a complex calculation method. The amount depends on the greatest value between:

the purchase price indicated on the deed of sale;
the property value entered on the municipal assessment roll (market value);
the transaction’s true value (if the buyer received another form of compensation for the acquisition, such as an exchange of real estate properties instead of a cash payment).

Next, a rate is applied based on the property’s value according to the following brackets (valid in 2024, but subject to change):

0.5% on the portion valued up to $61,500;
1% on the portion valued between $61,500 and $307,800;
1.5% on the portion valued $307,800 and over.

Differences Between Municipalities

However, warns Me Audrey Aubin-Brushey, notary, each municipality can adjust the property transfer tax rates to suit its fiscal policies.

Some cities apply higher rates to higher brackets or charge additional fees. For example, Montreal imposes a 3.5% rate on properties valued over $1,000,000.

This is why it’s important you find out from your municipality which specific rates will apply to your transaction.

Sample Tax Calculation

If you buy a $400,000 home, the tax may be calculated thusly:

0.5% on $61,500 = $307.50
1% on ($307,800 - $61,500) = $2,463
1.5% on ($400,000 - $307,800) = $1,383
Estimated welcome tax total: $4,153.50

Online calculator tools are available to help you crunch the numbers.

Do the Sales Taxes on a New Construction Replace the Welcome Tax?

No. In the case of a new home purchase, the applicable sales taxes are completely distinct from the welcome tax. As are the property taxes (municipal and school), payable each year following the home purchase.

This means that the first year of their new home acquisition, the buyer will have to pay the welcome tax, school tax, municipal tax, and sales tax.

Are There Any Exemptions?

In some situations, a tax exemption is permitted, such as

the transfer of property between members of the same immediate family in the ascending or descending line (for example, from parents to children or grandparents to parents);
the transfer of property between spouses (married or common law);
a merger or transfer between certain companies;

when the property forms part of a registered agricultural operation.

Some municipalities offer a full or partial refund of this tax as part of home purchase support programs with specific eligibility criteria to encourage homeowners to move to their area. It’s something worth looking into!

Me Di Domenico

Lawyer

When and How to Pay This Tax?

The municipality sends a payment notice a few weeks after the property transaction. This notice arrives by mail, usually between 3 and 6 months after the purchase.

The property owner must settle the amount within 30 days of receiving the notice and in a single instalment (some municipalities allow more than one instalment, so check with them!). Late payments will incur interest and penalties.

Make sure you check the applicable rates with your municipality and, if necessary, consult a real estate professional or notary for personalized advice.