Land Transfer Tax, Income Tax and Property Tax in Islamic Financing

Two families of taxes to separate before buying

Transaction taxes, such as land transfer tax, are paid once at closing. Recurring taxes, such as property tax or tax on rental income, come back every year. An Islamic structure can affect both, so review them before making an offer.

When title changes hands twice: transfer tax on both legs

When a financier buys the home and resells it to you, as in murabaha, or keeps it in its name, as in ijara, ownership may change hands twice. Depending on the structure and province, transfer tax may be due on each transfer.

Ontario and Toronto: provincial and municipal tax combined

In Ontario the buyer pays provincial land transfer tax, and Toronto adds a separate municipal tax. First-time buyer refunds generally assume you are the purchaser; ask whether your structure allows it, as our page on halal financing in Ontario explains.

Quebec: a welcome tax billed by the municipality

In Quebec, property transfer duties, nicknamed the welcome tax, are calculated in brackets on the property value and billed by the municipality after purchase. Some cities, including Montreal, apply higher rates on upper brackets.

British Columbia: property transfer tax and exemptions

British Columbia charges provincial property transfer tax whenever a transfer is registered. Exemptions exist for some first-time buyers and some new homes, but they require that the eligible person be the one receiving title.

Alberta: registration fees instead of a transfer tax

Alberta has no land transfer tax comparable to other provinces. Buyers instead pay much smaller land titles registration fees, which lowers the stakes of a double transfer in an Islamic home financing structure.

What the 2024 federal budget announced and what remains open

Budget 2024 said Ottawa would explore measures to expand access to products like halal mortgages, including possible changes in tax treatment. According to several analyses, no specific tax rule has followed yet; check the current status before relying on it.

Principal residence: who owns the home for tax purposes?

The principal residence exemption assumes you own the home. If the financier holds legal title, most structures make you the beneficial owner through a trust or contract. Have an accountant confirm this before closing.

Rental property: is the profit portion deductible?

For a halal-financed rental property, the question is whether murabaha markup or ijara rent can be deducted as a financing cost. Treatment depends on the facts and contracts; a chartered professional accountant should review it.

New homes: GST, HST and rebates to watch

Buying a new home triggers GST or HST, with possible new housing rebates. If the financier buys from the builder first, you must determine who can claim those rebates, or the buyer could lose them.

Property and school taxes during the contract

Even when the financier stays registered owner, the contract almost always places property taxes, and school taxes in Quebec, on the occupant. Some providers collect them with each monthly payment, others let you pay directly.

Keep statements and have the structure reviewed

Keep the annual statements splitting principal from profit or rent, along with transfer deeds. Before signing, ask an accountant and a notary or lawyer to review together the tax structure proposed by the provider.

Checking the tax impact of a halal-financed purchase

1. Ask the provider for a written diagram showing who holds title at each stage and how many transfers occur.
2. Send it to the notary or lawyer for a land transfer tax estimate in your province.
3. Check whether you remain eligible for first-time buyer or new home rebates under this structure.
4. For a rental, ask an accountant how to report the profit or rent paid to the financier.
5. Specify in the contract who pays property and school taxes and on what schedule.
6. File annual statements and registered deeds for tax returns and a future sale.

Transaction taxes by province for a halal purchase

Tax records to keep for halal financing

• Registered sale, lease or co-ownership deeds
• Statement of transfer duties or land transfer tax paid
• Provider's annual statements splitting principal and profit or rent
• Property tax bills and, in Quebec, school tax bills
• GST or HST rebate forms for a new home
• Signed leases and rent records for a rental property

Unpleasant tax surprises in a halal mortgage

• Signing an offer without estimating transfer tax on a two-transfer structure, then running short of cash at closing.
• Assuming the first-time buyer refund applies automatically when initial title is in the financier's name.
• Deducting markup on a rental as ordinary interest without accounting advice on the payment's true nature.
• Forgetting that property taxes remain the occupant's burden and letting municipal arrears build up.
• Believing the 2024 federal announcements already settled halal mortgage taxation and planning on that basis.

Your questions on halal mortgage taxation