Here’s an outline of some of the costs you should anticipate when you buy a cottage in the Kawarthas:

• Adjustments for realty taxes and fuel
• Lawyer’s fees, expenses, and disbursements
• Title search and registration of documents in the land titles office
• Title insurance premium (assuming your lawyer recommends title insurance)
• Mortgage expenses, including interest on an assumed mortgage (calculated as part of the adjustments), any arranging costs, and registration of a new mortgage in the land titles office
• Cost of survey, zoning memorandum, and tax certificate
• House insurance for fire and other hazards, typically including liability coverage
• Harmonized sales tax (HST). HST is usually not payable on the purchase of a cottage (a resale home). HST is, however, payable on lawyer’s fees and most disbursements. (Although HST is payable on commission, the seller pays the real estate representatives’ fees, not the buyer)
• Provincial land transfer tax
• Personal expenses, such as moving costs and the purchase of household goods

The closing costs can be higher than you expected. You should be aware of these extra costs before you find yourself legally bound to an agreement of purchase and sale and perhaps unable to fulfill its financial terms.

Here are details about some of the costs you can expect when you buy a cottage in the Kawarthas:

Legal expenses

Your lawyer will receive a copy of the firm agreement of purchase and sale and will check title and complete searches associated with zoning, taxes, etc. Your lawyer will also submit a requisition to the seller’s lawyer concerning any objections. In addition, your lawyer will complete a sub-search to verify title to the point of closing. Your legal fees may be higher than estimated given problems encountered in securing marketable title or discharging encumbrances.

Survey costs

Surveys are important for the buyer because they serve to legally define what is being purchased. They allow the buyer to verify the size and extent of future land ownership. If an up-to-date survey is not available from the seller, you may want to include in your negotiations the preparation of a survey by an Ontario Land Surveyor. In some cases, your lawyer might recommend title insurance to protect against minor title defects and so avoid the costs of a new survey. Surveyors prepare a report that sets out all visible improvements (buildings) in relation to the property’s boundaries. The report is accompanied by a written document that describes any issues arising from the survey and the surveyor’s opinion on these topics. Survey costs can exceed estimates given the size of the property or because the surveyor encounters unique circumstances.

Provincial land transfer tax

As a buyer, when you enter into an agreement of purchase and sale you are obtaining an interest in land. Under the Land Transfer Tax Act, a taxable event occurs when an interest in land is conveyed. Provincial land transfer tax is assessed on real property (all property including land and buildings) when a deed is registered that transfers ownership of the property from one party to another. The provincial government employs a sliding scale of percentages based on property value to calculate the tax.

Provincial land transfer tax calculation

The land transfer tax in Ontario is as follows:

• .5 per cent on the first $55,000
• 1.0 per cent on the portion between $55,000 and $250,000
• 1.5 per cent on the balance over $250,000

If the land falls under the definition of single-family and duplex residences, an additional tax of 0.5 per cent applies to a consideration over $400,000. There is a land transfer tax calculator available at: http://www.landtransfertaxcalculator.ca/#ProvincialLandTransferTax

Sale of chattels

If the transaction includes chattels (moveable possessions and personal property), the total purchase price should be broken down: provincial land transfer tax is payable on the real property and harmonized sales tax is payable on the chattels.

Real property taxes

Like other municipalities, the City of Kawartha Lakes generates revenue by charging a tax to property owners based on the value of property. In fact, the municipality generates most of its operating revenue by taxing real property within its boundaries. Real property is taxed based on the ad valorem or according to value system. (The term current value refers to the market value of property.) The amount of property tax you can expect to pay on your Kawartha property is simply a percentage of the value of your real property. The Municipal Property Assessment Corporation (MPAC) provides the property owner and the municipality with an annual estimate of the property's current market value. To calculate your property tax, the municipality multiplies the MPAC assessment by the tax rate (which is expressed as a decimal). The tax notice for a specific property provides a total tax levy and also details the appropriate component for municipal and education allocation. The tax notice also provides the property’s assessment roll number, assessment classification and tax class, assessed value, and details about interim billing and remaining taxes payable either in full or by installment.

Taxes/local improvements

In general, the adjustment is calculated on the proportionate share of taxes borne by the buyer and the seller in relation to the closing date. The City of Kawartha Lakes and other municipalities must determine in advance the anticipated taxes for the upcoming year. The final operating budget is usually not adopted by council until the spring. As a result, the City of Kawartha Lakes and other municipalities must estimate taxes and distribute interim tax bills – usually 50 per cent of the previous year’s final taxes. Property owners remit taxes based on these interim bills. Adjustments are made coincident with the final tax notice. Property owners typically pay all taxes for the year in advance of the year end. (In the City of Kawartha Lakes, the final tax installment is usually due at the end of September.) Therefore, the buyer may have to reimburse the seller for some of the taxes paid during the tax year depending on the closing date for the transaction. When the recreational property is sold during the tax year, an adjustment is made between the seller and the buyer.

Fuel If there is a fuel tank, the seller fills the tank and the buyer pays for a full tank at closing.

Insurance The buyer arranges new coverage and no adjustment is required in accordance with the agreement of purchase and sale.

Interest on assumed mortgages

The seller makes regular payments until closing as mortgages are paid in arrears. The principal balance is determined after the seller makes the last payment. Interest is calculated on a per diem basis and credited to the buyer who makes the next regular payment.

Water/utilities

Typically, the seller orders a meter reading to coincide with the date of closing. As a result, no adjustment is required.

The statement of adjustments

A statement of adjustments or closing statement sets out the financial history of the transaction, including all adjustments. A statement of adjustments, which is usually prepared by the seller’s lawyer, sets out in balance sheet form, all credits to the seller (e.g., purchase price, pre-paid taxes and pre-paid utilities), all credits to the buyer (e.g., deposits and arrears in taxes prior to the date of closing) and the balance due on closing. The statement of adjustments provides all of the parties to the transaction with a financial breakdown as of the closing date. Various items, such as mortgage interest, realty tax, local improvement rates, and unmetered utility and fuel costs, must be apportioned appropriately between the buyer and the seller. Adjustments are the apportionment or division of costs between the buyer and the seller as of the closing date or the date of completion. The date of completion is charged to the buyer as this is the day the buyer takes legal responsibility for the property. Your real estate representative should be able to discuss the range of closing costs you can expect with you, but not specifics.