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In Canada, a mortgage lender will give you a higher interest rate for purchase prices over the $1,000,000 mark. Assuming you agree to purchase a home from a seller for $1,200,000, is it legal to agree that you will pay $1,000,000 for the house and have a separate contract to buy a piece of furniture / appliance / other chattel from them for the remaining $200,000? This way you A. secure a lower mortgage rate. and B. pay less on the land transfer tax (tax buyer pays based on home price).

Even if this is legal by the letter of the law:

  • What is the likelihood of this working, assuming the seller is in agreement?
  • Are there any likely risks / problems one could face upfront or down the road as a result?
  • Would the significant difference between purchase price and home value (as assessed by the municipality) raise red flags such as cause the suspicion of money laundering etc?

I'm looking for the community's thoughts before I approach my lawyer on the matter.

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    Your lawyer will probably advise you that it is criminal fraud. I assume you're looking for the details as to why that is. – user6726 Jan 31 '19 at 20:38
  • @user6726 thanks for advising it is illegal. Yes, an explanation as to why would be helpful. Thanks. – AfterWorkGuinness Jan 31 '19 at 20:41
  • It's also very unlikely that a bank will give you a $200,000 loan for a piece of furniture. And unless you are very well off, you aren't going to be making two major purchases back-to-back. – Ron Beyer Jan 31 '19 at 23:45
  • Is it the purchase price or is it the loan amount that triggers the higher interest rate? – Mark Feb 1 '19 at 3:35
  • @Mark fairly sure it's the purchase price. It's a method the Federal government uses to "cool" the housing market ... which doesn't really work. – AfterWorkGuinness Feb 1 '19 at 14:02
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The Land Transfer Tax Act of Ontario states that it is an offense to make a false statement for the purpose of determining tax liability. The fair market value (which needs to be reported) is $1.2M, and cannot be fraudulently lowered. The "value of the consideration" is "any liability assumed or undertaken by or on behalf of the transferee as part of the arrangement relating to the conveyance", which would include the $200,000 couch that was supposedly "a separate sale". Rule 1: do not try to defraud the taxman. It is not clear to me what the mortgage company's interest is (is the interest rate determined by the amount borrowed, or the value of the thing borrowed – e.g. if you borrow $200K to get a $1.2M home, is that also a high interest rate loan?)

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