Looking to buy your first home? It’s certainly no easy feat. Luckily, for new homebuyers in Canada, numerous government incentives are available to help make buying a home a little bit easier.
This article will guide you through the latest addition of government incentives, The First-Time Homebuyers Savings Account (FHSA), and revisit a few others so that you have all the information you need before you get started.
The Tax-Free First Home Savings Account (FHSA)
In April of this year, the government announced its latest incentive for first-time home buyers, The Tax-Free First Home Savings Account (FHSA). With this account, new homebuyers can save up to $40,000 tax-free.
Contributing to the FHSA is tax deductible and qualifying withdrawals to buy a home are tax-free. Contributions can’t exceed $8,000 per year but any remaining funds can be transferred to a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF).
To open an FHSA, you must be a Canadian citizen that is at least 18 years old and has not lived in a qualifying home in the previous four calendar years.
The Home Buyers’ Plan (HBP)
The Home Buyers’ Plan (HBP) is a government-run program in Canada that allows first-time homebuyers to withdraw up to $35,000 from their RRSPs, tax-free, to buy or build a home for themselves or a relative with a disability.
Keep in mind, while the HBP increases your home-buying budget, it reduces your RRSP, which can affect your potential tax-sheltered investment. Repayment of the amount withdrawn is required within 15 years. If repayment is not made, it will be counted as income and taxed by the Canada Revenue Agency.
To qualify, you must be a resident of Canada, have an RRSP with sufficient funds, and plan to use the home as your principal residence within a year of building or buying it.
The First Time Home Buyer Incentive
The First-Time Home Buyer Incentive is a program by the Canadian government that helps first-time homebuyers reduce their monthly mortgage payments by providing a shared-equity mortgage with the Government of Canada.
The program offers 5% or 10% for a first-time buyer’s purchase of a newly constructed home, 5% for a first-time buyer’s purchase of a resale (existing) home, and 5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home.
Because it is a shared-equity model, the government shares in both the upside and downside of the property value. This entails a potential increase or decrease of up to 8% per annum on the incentive amount from the advance date until repayment. The incentive must be repaid after 25 years or when the property is sold, based on the market value of the home at the time of repayment.
To qualify, you must be a Canadian citizen or resident with an annual income below $120,000 ($150,000 for certain cities), and borrow no more than 4 times your income (or 4.5 times in specified cities). You must also be a first-time homebuyer and meet the minimum down payment requirements using traditional funds.
The GST/HST New Housing Rebate
The GST/HST New Housing Rebate provides up to a $6,300 rebate on the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST) for new homes.
Homebuyers who purchase a new-build home, preconstruction, or make substantial renovations to an existing home can apply. Applicants must complete an application form and provide supporting documents, and the rebate can be claimed within 2 years after the construction date.
The First Time Home Buyers’ Tax Credit (HBTC)
The First-Time Home Buyers' Tax Credit (HBTC) is a government initiative that provides eligible first-time homebuyers with a $10,000 non-refundable income tax credit, resulting in tax savings of up to $1,500.
To be eligible, the home must be registered in the buyer's name, and they must be a first-time homebuyers who will use the property as their primary residence. The HBTC can be combined with other government programs, such as the Home Buyers' Plan, the First-Time Home Buyer Incentive, and the GST/HST New Housing Rebate. Some provinces also offer home-buying programs.
Land Transfer Tax Rebates
First-time homebuyers in Ontario, British Columbia, Prince Edward Island, and the City of Toronto can apply for land transfer tax rebates. The rebates are available on the provincial and municipal levels, depending on where the property is located.
The maximum rebate amount is $4,000 in Ontario and $4,475 in Toronto, while the rebate amount in British Columbia varies depending on the purchase price of the property.
To qualify, the buyer must be a Canadian citizen or permanent resident and must be purchasing their first home. The amount of the rebate varies depending on the purchase price and the location of the property.
With all these incentives available, it is important to note that eligibility requirements, program details, and availability may vary by province or territory. If you’re interested in one of the above options, consult with a financial advisor or mortgage professional to determine which programs you may be eligible for, and which best suit your needs.
