Important Incentives for First Time Home Buyers - Federal Budget 2022 Update
Are you a first time home buyer? If so, there are a few government incentives available to alleviate some of your costs.
1. Land Transfer Tax Rebate
The Province of Ontario has implemented a program to assist “First Time Home Buyers” of new and resale homes. Under this program, qualifying buyers may be eligible for an exemption of Ontario Land Transfer Tax of up to $4,000.00 if the Agreement of Purchase and Sale was entered into after November 14, 2016. The City of Toronto also offers a similar exemption of up to $4,475.
There are specific rules relating to this proposed refund.
2. Home Buyer’s Plan
The Home Buyer’s Plan currently lets you withdraw up to $35,000 from your RRSP to use as a down payment on your first home. This program allows first-time buyers to withdraw up to $35,000 from their RRSPs without withholding tax, and the taxpayer can repay the funds within a 15-year period.
To qualify, a participant must:
• be a Canadian resident when the funds are withdrawn;
• have an agreement to buy or build a qualifying home;
• be a first-time homebuyer, which means they didn’t own and occupy a home in the four years prior to purchasing a home; and
• intend to occupy the home as their principal residence within one year of buying or building it.
3. First Time Home Buyer Tax Credit
It is currently the case that first time home buyers may be eligible for a federal tax credit of $5,000.00 which will result in a tax rebate of $750.00. The considerations to be a “First Time Home Buyer” under the tax credit are different than the considerations under Land Transfer Tax.
To be first time home buyer under the tax credit, a buyer and his/her spouse or common law partner cannot have owned and lived in a home in the year of the purchase or the four preceding years.
Of interest, the Federal government has proposed in the 2022 Budget Update that the Home Buyer’s Tax Credit is going to increase from $5,000.00 to $10,000.00. This increase will provide eligible first-time homebuyers with up to $1,500.00 in tax relief. This measure will apply to homes purchased on or after January 1, 2022.
4. Tax-free First Time Home Savings Account (Proposed)
This account is still in the proposal stage, and there are lots of unknowns as to how it will actually work. It is proposed that,starting in 2023, the First Home Savings Account (FHSA) will allow Canadians to contribute up to $40,000 towards their first home, and withdraw it tax-free to put towards their first home purchase, with no requirement to repay it. Combining the features of both an RRSP and a TFSA, this plan would allow Canadians to set aside 100% of every dollar they earn up to $40,000 and shorten the time it takes to afford a down payment.
The FHSA will allow Canadians to contribute up to $8,000.00 per year to the account, up to a lifetime maximum of $40,000.00. The income earned in the account is not subject to tax and withdrawals made to purchase a first home are also non-taxable.
For individuals to qualify, the following criteria must be met:
• an individual must a resident of Canada and at least 18 years of age;
• an individual must have not lived in a home that they owned at any time in the year the account is opened, or during the preceding four calendar years;
• an individual shall not be permitted from making both the FHSA withdrawal and a Home Buyer’s Plan withdrawal for the same home.
We would be pleased to review the applicability of these programs and incentives to your situation. This post was written jointly by Slonee Malhotra and Mira Markovic, qualified real estate lawyers with SorbaraLAW.