First Time Home Buyer Benefits in Ontario
There are six main benefits that first time home buyers in Ontario can take advantage of. In this article, we will cover each of them.
Land Transfer Tax Credit
Land transfer tax is one of the closing costs when you purchase a home in Ontario and this benefit reduces that expense.
When you buy your first home you will get a $4,000 rebate on your land transfer tax cost.
If your purchase price is $368,000 or lower, you will pay $0 in land transfer tax.
Any purchase price above that amount will simply get the $4,000 discount.
For example, if your purchase price is $750,000 your land transfer tax will be $11,475 - $4,000 = $7,475.
If you purchase in the city of Toronto you will also get a municipal land transfer tax rebate of $4,475 for a total savings of $8475.
Bottom line: You can Save $4,000 (or $8475 if you’re buying in Toronto)
First Time Home Buyer Tax Credit
When you file your taxes for the year in which you bought your first home you are able to claim a tax credit and receive $1,500. Before 2022 the amount was $750.
On your income tax return, you place the $10,000 Home Buyer's Expense amount (previously $5,000) on Line 31270.
The government allows you to split the amount with a spouse or common-law partner, provided the combined total does not exceed $10,000.
You get a rebate of $1,500 on the taxes you owe.
Important: If you owe less than $1,500 in taxes, you can only reduce them to $0. You won't receive a refund. This is because it is considered a non-refundable tax credit.
Bottom line: You may be able to get back $1,500 when you file your taxes for the year you purchase your first home.
Home Buyer Plan (HBP)
The Home Buyers' Plan (HBP) allows first-time homebuyers to borrow up to $35,000 tax-free from their RRSPs to use towards the purchase of their first home.
If two first time home buyers are purchasing together both of you can take advantage, for a total of up to $70,000.
A withdrawal from your RRSP is considered an interest-free loan to yourself that must be repaid within 15 years.
You repay the HBP by depositing the allotted amount back into your RRSP within 15 years.
Your notice of assessment from the Canada Revenue Agency will include details of how much you have already repaid and how much you have yet to pay back.
To apply for the Home Buyers' Plan, you must download and complete the T1036 form. The first section must be completed by you, and the second section by the financial institution where your RRSP is held.
The HBP does not allow withdrawals from RRSPs unless they have been in the account for at least 90 days.
Bottom line: You can withdraw money from your RRSPS without triggering a taxable event.
Tax-Free First Home Savings Account (FHSA)
Starting April 1st, 2023, Canadian first time home buyers can open a Tax-Free First Home Savings Account (FHSA). This account combines the advantages of the registered retirement savings plans (RRSP) account and the tax-free savings accounts (TFSA) account.
Contributions to an FHSA are tax deductible, income and capital gains within the account are tax-free, and Qualifying withdrawals to buy a qualifying home purchase are also tax-free.
First-time home buyers can save $40,000 tax-free with an FHSA over their lifetime and can contribute up to $8,000 per year.
It is possible to carry forward up to $8,000 of your unused annual contribution amount for use in subsequent years, subject to the lifetime contribution limit.
The carry-forward amounts do not begin accumulating until your FHSA is opened.
To take full advantage of this account you will want to open one as soon as you can, and then make the full $8,000 contribution each year until you reach your lifetime limit.
However, you must purchase your home within 15 years or the account will lose its status as an FHSA and lose FHSA benefits.
After making a qualifying withdrawal to purchase a home, any remaining funds can be transferred to an RRSP or registered retirement income fund (RRIF), penalty-free and tax-deferred, as long as you do so before December 31, since the FHSA plan no longer qualifies as an FHSA after that date. RRSP room is not reduced by your transfers.
In the event that you were unable to use your FHSA funds to purchase a qualifying home, you can transfer the funds to an RRSP or an RRIF tax-free.
An FHSA account allows you to hold the same types of investments as a TFSA account.
Bottom line: Use this account and get the best features of the RRSP and the TFSA accounts.
First-Time Home Buyer Incentive (FTHBI)
The First-Time Home Buyer Incentive (FTHBI) is what’s known as a “shared equity” program.
Depending on your eligibility, you can get a government loan worth either 5% of your home's price for an existing home, or 10% if buying new construction.
The loan is interest-free, however, the amount you need to repay is based on the value of your home at the time of repayment.
Repayment must happen after 25 years, or when you sell your home.
If you borrow 5% under the program, the amount that needs to be paid back is 5% of the value at the time of repayment.
The shared equity gain amount is capped at 8% per year, so you may not need to pay back the full 5% of the value if your home's value increases substantially.
If the home's value has decreased, the loss is limited to -8% per year.
To be eligible for this program you must already qualify for your insured mortgage so this loan cannot increase the maximum mortgage amount you qualify for.
The incentive loan however is considered to be part of the down payment, so your mortgage default insurance premium will be based on the improved loan to value.
For example, if purchasing with a 5% down payment and receiving 5% from the incentive loan, your insurance premium would be calculated based on a loan-to-value of 90% rather than 95%. This will help you save additional money on the insurance cost.
The eligibility requirements of this program make it inaccessible for most people, but for those who do qualify, it’s can be an excellent way to reduce your regular mortgage payments.
Bottom line: A government program that can reduce your regular mortgage payments but the government will own equity in your home.
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