This extra cost is due to land transfer and capital gains taxes incurred by a properly structured Diminishing Musharakah mortgage.
Due to this, the APR of a Diminishing Musharakah mortgage rises to 6.132% compared to 5.490% for EQRAZ.
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Breakdown of the Diminishing Musharakah customer's recurring tax obligations: Land Transfer Tax (LTT) on annual aggregate equity transfers and Capital Gains Tax (CGT) on the appreciation gains, accumulating year by year. Hover any point to see LTT, CGT, and the running total. Tawarruq customers pay neither.
Calculated annually on the aggregated equity transferred during the year, valued at year-end property price. Bracket-by-bracket lookup using the customer's province (Toronto and Montreal include municipal LTT).
Each monthly equity transfer realizes a capital gain equal to the appreciation on that share. Yearly CGT is computed by stacking the taxable gain on top of base income and integrating the marginal income-tax rate over that range. Federal inclusion rate held at 50% throughout, consistent with the cancellation of the previously proposed two-thirds rate on gains above $250,000.
A Tawarruq mortgage produces a single secured obligation on a single mortgage charge. The customer purchases the property once, registers ownership once, and pays LTT once at closing — identical to a conventional mortgage. There are no further property transfers triggering tax.
Closing and legal costs, broker fees, property tax, and home insurance; these will impact the APR % for both compared products identically.
The Diminishing Musharakah scenario modelled by this calculator reflects EQRAZ's good-faith understanding of how a Diminishing Musharakah ("DM") home financing structure operates when implemented (a) in accordance with the Shariah standards published by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the OIC International Islamic Fiqh Academy (Jeddah), and (b) under Canadian property, mortgage, and tax law without any contractual modifications, waivers, structural workarounds, alternative legal characterisations, regulatory exemptions, or other risk-mitigation features that would alter the recognition of each periodic equity transfer as a separate property disposition.
Consistent with the foregoing, the model assumes that the financier and customer hold genuine proportional ownership interests in the property and that each periodic acquisition by the customer of the financier's share gives rise to (i) a true conveyance for purposes of provincial Land Transfer Tax legislation and (ii) a realised capital gain on the disposed share for purposes of the Income Tax Act (Canada).
Diminishing Musharakah home financing products offered in Canada by other financial institutions may be structured, documented, or operationally implemented in ways that differ from the assumptions in this model — including, without limitation, through alternative legal characterisations of the customer-financier relationship, reliance on different Shariah interpretations or scholarly opinions, use of tax-planning strategies, or invocation of statutory or regulatory exemptions — and where such differences exist, the figures produced by this calculator may not apply to those products.
Nothing in this calculator is intended as, or should be construed as, a representation, statement, comparison, or assertion concerning any specific competitor, product, brand, service, financial institution, or Shariah board.
All figures are illustrative and educational only. Any customer considering a Diminishing Musharakah financing arrangement from any provider should obtain independent tax, legal, and Shariah advice regarding the actual legal, tax, and Shariah characteristics of the specific product under consideration, and should not rely on the outputs of this calculator for any transaction-specific decision.