Buyers in Toronto's high-priced real estate market will be digging even deeper today as the city's newest tax goes into effect. "Obviously the day has come. It's still a back-breaking tax," said Von Palmer, spokesperson for the Toronto Real Estate Board, which led a bitter fight last year to block the municipal land transfer tax. "We hope it does not affect the market in a negative way."

Sales increased after the tax was approved last October, Palmer said. In the first two weeks of January, Toronto sales were up 21 per cent over the same period in 2007, while in the 905 area – where the tax does not exist – sales were up by only 5 per cent.

"We're not suggesting it's because of the land transfer tax. That would be speculation," he said. "However, human nature being the way it is, some are wondering how to avoid the land transfer tax."

The tax, on both residential and commercial properties, is in addition to the existing provincial tax.

Purchasers are exempt from the Toronto tax if they signed a deal to buy before December 31 2008. Also, first-time home buyers receive a rebate on purchases up to $400,000.