Hello first time home buyers.
The process of buying the first home is a very exciting experience, but it can be tasking and overwhelming. In order to encourage home ownership and lessen the financial burden various levels of governments offer credits and incentives for first time home buyer, and they can add up to fairly significant amounts. I would like to explain to you the credits, their benefits, what they are and how to apply for them.
There are many requirements and rules that need to be met to qualify for the credits, in this blog I do not plan to cover all of them or else you will be reading it for the next two days, the highlights are below.
Land Transfer Tax (LTT) Refunds for First Time Home Buyers.
With raising property prices, and the governments need to increase taxes, the land transfer tax (provincial and in various cases municipal) is a major factor and expenditure when purchasing the property. With few exemptions everyone buying a property in Ontario has to pay provincial LTT, in addition some municipalities (Toronto for example) have added their own tax (this trend is likely to continue as others municipalities are ready to increase their tax revenues). To lessen the burden for the first time home buyers the provincial government offers a refund of up to $4,000. Buyers in Toronto, since they are also paying municipal LTT can get an additional $4,475 in tax relief for a total of up to $8,475. The rebate forms are most often prepared by your lawyer when preparing the purchase documents. To see how much you qualify for please visit the calculator on my website.
One important rule I would like to make a note of is that if you are a first time home buyer purchasing a home with someone else other than your spouse (parents or children for example), you will only qualify for a prorated portion of the tax refund (based on your ownership), and you will not be able to claim a full rebate in the future.
First Time Home Buyers Tax Credit (HBTC).
First time home buyers tax credit is a federal government income tax credit which will provide tax relief of up to $1,500 (increased from $750 in 2022) in federal tax relief. Spouses can share the credit, but the total can’t exceed $1,500. In order to claim the credit the Home Buyers Amount form (line 369 on your personal tax return) has to been filled out in the year of acquisition.
Home Buyers Plan (HBP).
Home buyers plan is a federal government program allowing you to withdraw up to $35,000 from your RRSP (Registered Retirement Savings Plan) towards the purchase of your first home. The amount was increased from $25,000 limit per person in March 2019.
Each eligible spouse can withdraw up to $35,000 from their plan giving you potentially $70,000 you otherwise wouldn’t be able to use for the purchase of the house. The plan is essentially a loan that needs to be repaid, the repayments start in the 3rd year following the withdrawal, and you have 15 years to repay it. If the repayments are not made the minimum amount for which should have been repaid will be added to your income. The funds contributed into RRSP must be inside the plan for 90 days prior to the withdrawal in order to qualify for HBP.
The rules regarding the tax credits and rebates are quite complex and detailed, please let me know if you have any questions, I am always glad to help.
Sources:
Ministry of Finance Ontario Land Transfer Tax Rebate
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