Buying a home can be an expensive but worthwhile endeavour. There are many costs to be paid on the closing date including the down payment, land transfer fees, title insurance and more. On top of this, there is your monthly mortgage payment to make!
The Federal Government is well aware of the high costs that a first-time homebuyer faces when buying a home and has implemented several government programs to help ease their financial burdens.
Want to learn how you can save money on your first home? Here are the tax credits and rebates available to you.
First Time Homebuyers' Tax Credit
The First-Time Home Buyers Tax Credit is a $5,000 non-refundable tax credit. This tax credit offsets the balance that a home buyer owes on their tax return. Since tax credits merely offset the balance of one’s tax return, this tax credit is only beneficial to individuals who earn more than the tax-free low-income cutoff.
While $5,000 may not be the large sum that you were hoping for, it will certainly alleviate some of the costs associated with buying a home and paying associated closing costs for the first time.
First-Time Home Buyer Incentive
Alongside the First Time Home Buyers’ Tax Credit, the Canadian Government has instituted the First-Time Home Buyer Incentive. This government program helps qualified home buyers reduce their mortgage payments.
The First-Time Home Buyer Incentive is a shared-equity mortgage with the Government of Canada. A shared equity loan is when mortgage brokers or financial institutions provide a mortgage loan, and the Government of Canada offers an additional loan alongside it. The loan from the government does not need to be repaid until 25 years after the initial purchase or when the property is sold, whichever comes first.
The shared equity mortgage is based on the home’s purchase price and the type of house you buy. Home buyers can receive:
- 5% or 10% for a first-time buyer's purchase of a newly constructed home
- 5% for the purchase of an existing (resale) home
- 5% for the purchase of a new or resale mobile home or manufactured home
Land Transfer Tax
When buying a house, the buyer will need to pay a land transfer tax (LLT) or property transfer tax. This tax is a one-time cost that is applied when the title or ownership of real estate property changes from one person to another. In Ontario, land transfer tax rates are assessed as a percentage of the property value. Buyers in Toronto can also expect to pay a municipal tax in addition to their property transfer tax.
In some provinces, the provincial government offers land transfer tax rebates for first-time home buyers. In Ontario, a first-time home buyer can receive up to $4,000 to pay their land transfer taxes.
In order to qualify for the land transfer tax rebate, both a buyer and their partner (whether they are a spouse or common-law partner) cannot have previously held a Canadian mortgage.
Home Buyer's Plan
The Home Buyers’ Plan (HBP) is a program that is designed to make home-buying easier. A first-time homebuyer is allowed to withdraw up to $35,000 from their registered retirement savings plan (RRSP) to either buy or build a qualifying home. Canada Revenue Agency defines a qualifying home as any home in Canada. A share in a co-operative housing corporation that entitles buyers to possess and receive an equity interest qualifies.
When a buyer pulls $35,000 or less from their RRSP, their financial institution cannot tax it. It will also not be listed as taxable income on one’s tax return. If two people are buying a house, they and their spouse or common-law partner can both withdraw the home buyer’s amount from their RRSPs, allowing them to access up to $70,000 without tax.
It is thought that this federal program will make it easier for a first-time homebuyer to either make a down payment or pay construction fees associated with their home.
New Housing Rebate
Individuals who choose to buy a new home or build the home of their dreams can look forward to receiving up to $30,000 back in rebates. The GST/HST New Housing Rebate helps buyers cover the costs of their newly-built home by offering up a rebate on some of the GST or the provincial part of the HST paid. Before applying for the New Housing Rebate, owners should check the regulations and eligibility requirements.
Rebates For Renovations
While many first-time homebuyers save money for their home purchase, many can only afford a house that costs lower than the average house price. These homes are typically sold at a lower purchase price due to their conditions; often, they are quite outdated, small, or have many features that require updating. These homes, which are fondly named “fixer-uppers,” are a great way for first-time buyers to purchase a house affordably. They also provide a great opportunity for buyers to transform an existing home into the house of their dreams.
First-time buyers who purchase a house that needs extensive renovations do have rebates available to them. The Ontario Government offers homeowners the chance to receive up to $16,080 back if they have completed substantial renovations, added a major addition or converted a non-residential property in the last two years. The GST/HST Substantial Housing Rebate, not unlike the HST New Housing Rebate, allows an individual to recover some of the GST or the provincial part of the HST paid for their house. Keep in mind, this rebate is only available to individuals who are using this home for their principal residence.
