Saving Smarter for Your Starter
Becoming a first-time homebuyer can evoke a mix of emotions, from excitement to stress, particularly since it often comes with a hefty price tag, especially if you lack existing assets to aid in securing a mortgage. Unlike many, most Canadian first-time homebuyers don’t have the advantage of proceeds from a property sale to finance their initial purchase. Thankfully, the Canadian government provides several programs tailored for first-time homebuyers to alleviate the financial strain of entering the housing market. This page encompasses all the essential resources to initiate your journey into homeownership.
Canada Home Buyers' Plan (HBP)
The Home Buyers’ Plan (HBP) allows withdrawal from RRSPs to purchase or construct a qualifying home for oneself or a specified disabled person, with a 15-year repayment period. Eligibility conditions include being a first-time homebuyer (except for specified disabled persons), having a written agreement for home purchase or construction, Canadian residency during the withdrawal and home acquisition period, and intending to occupy the home as the principal place of residence within one year. Previous participation is permissible if the HBP balance is zero on January 1st of the withdrawal year and other eligibility criteria are met.
- Must be a first-time homebuyer or purchasing for a specified disabled person.
- Written agreement required for home purchase or construction.
- Residency in Canada throughout withdrawal and home acquisition period.
Residency: You must be a resident of Canada when withdrawing from your RRSPs under the HBP.
Agreement: You or the specified disabled person must have a written agreement to buy or build a qualifying home.
Qualifying home: The home must be located in Canada and include various housing types.
Deadline: The home must be acquired or built before October 1st of the year after the first withdrawal.
Replacement property: If the deadline isn’t met, you must cancel participation or buy/build a replacement property.
Intent to occupy: You must intend to occupy the qualifying home within one year of buying or building it.
First-time homebuyer: Generally, you must be a first-time homebuyer unless certain exceptions apply.
Specified disabled person: Different rules apply if purchasing or building for a specified disabled person.
Separation: Special considerations apply if you live separate from your spouse or common-law partner.
Withdrawal limits: The maximum withdrawal is $35,000, and withdrawals are only permitted from RRSPs.
Tax withholding: Tax is not withheld on withdrawals up to $35,000.
Withdrawal timing: Multiple withdrawals are allowed within the same calendar year as the first withdrawal and in January of the following year.
- Confirm eligibility by reviewing the criteria outlined in “How to participate in the Home Buyers’ Plan.”
- Complete Form T1036, “Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP,” separately for each withdrawal.
- Submit Form T1036 to your RRSP issuer after filling out Area 1; the issuer completes Area 2.
- Multiple withdrawals are allowed within the same calendar year as the first withdrawal and in January of the following year.
- Withdrawals are limited to $35,000 in total; no tax is withheld for withdrawals up to this amount.
- Any amount exceeding $35,000 is taxable income and subject to withholding tax at the time of withdrawal.
Participation in the Home Buyers’ Plan (HBP) can affect your RRSP deduction. Contributions made within 89 days before a withdrawal may not be fully deductible.
To calculate the non-deductible portion of contributions:
- For withdrawals from your RRSP: Deduct contributions during the 89-day period from the fair market value of the RRSP after withdrawal.
- For withdrawals from your spouse’s RRSP: Deduct contributions during the 89-day period from the fair market value of the RRSP after their withdrawal.
There are exclusions for RRSP withdrawal calculations under the HBP.
- Exclusions include amounts lacking RRSP receipts and lump-sum transfers.
- Refunded amounts and repayments under the Lifelong Learning Plan are not included.
- Contributions by spouses/partners follow similar guidelines.
- Non-deductible amounts are determined by the earliest contributions within the 89-day period.
- Repayment period for HBP withdrawals spans up to 15 years.
- Begins in the second year following the initial withdrawal year.
- Full repayment is allowed anytime into RRSPs, PRPPs, or SPP.
- Early repayments reduce the first year’s repayment obligation.
- Access HBP balance through online services or authorized representatives.
- Repayment Procedure:
- Contributions to RRSPs, PRPPs, or SPPs for the repayment year or first 60 days of the next year.
- Designate contributions as repayment using Schedule 7 in income tax return.
- CRA sends HBP statement annually with notice of assessment or reassessment.
- Repayment Considerations:
- Repayments don’t affect RRSP deduction limit.
- Early repayments reduce first year’s repayment obligation.
- Repayments viewable through online services.
- Repayment Adjustments:
- Repayments beyond minimum reduce future obligations.
- Insufficient repayments result in income inclusion on tax return.
- No repayment leads to inclusion of minimum required amount as RRSP income.
- Special Repayment Situations:
- Certain contributions ineligible for designation as repayments.
- Rules apply for deceased participants and those reaching age 71.
- Becoming a non-resident requires specific actions regarding repayment.
- Cancellation Criteria:
- Generally, participation cannot be canceled unless specific conditions are met.
- Cancellation may be possible if:
- No qualifying home was bought or built.
- The participant became a non-resident.
- Withdrawal was made to assist a specified disabled person, and conditions aren’t met.
- Withdrawal followed a marriage or common-law partnership breakdown under certain conditions.
- Due Date for Cancellation Payments:
- Payments typically due by December 31 of the year after the first withdrawal.
- Extensions apply in certain situations, such as non-residency.
- Cancellation Procedure:
- Make cancellation payment to existing or new RRSP.
- Complete Form RC471 or provide a cancellation letter explaining the reason for cancellation.
- Send completed form or letter to the CRA along with payment receipts.
- Addresses for submission vary based on residential location.
- Consequences of Non-Payment:
- Failure to make repayment results in inclusion of withdrawn amount as income.
- PRPP or SPP cannot receive cancellation payments.
- Tax Treatment:
- Cancellation payment is not considered an RRSP contribution and cannot be deducted.
- Amount withdrawn must be included as income if cancellation payment is not made.
- Annual Reporting Requirement:
- From the year of the first withdrawal under the Home Buyers’ Plan (HBP), you must file an income tax and benefit return annually until all withdrawals are repaid or included in your income.
- Mandatory even if bankruptcy is declared or no tax is owed.
- Reporting Process:
- Complete Schedule 7, RRSP, PRPP, and SPP Contributions and Transfers, and HBP and LLP Activities, and attach it to your income tax and benefit return.
- Schedule 7 indicates total HBP withdrawals and repayments for the year:
- Part E in the year of the first withdrawal.
- Part B in subsequent years.
- Do not report these amounts on line 12900 of your income tax and benefit return.
- RRSP contributions designated as HBP repayments should not be included on line 20800.
- Documentation:
- If filing electronically, retain supporting documents for six years in case of CRA inquiry.
*Disclaimer: The information presented serves as a general overview and may not cover all aspects of the topic. Please note that certain details may have changed or may no longer be current. For a comprehensive and up-to-date understanding, please consult authoritative sources such as the Canada Revenue Agency (CRA) website or seek advice from a qualified professional. The user is responsible for conducting due diligence to verify the accuracy and relevance of the information before relying on it for decision-making.
First Home Savings Account (FHSA)
A First Home Savings Account (FHSA) is a Canadian registered savings account that combines features of an RRSP and a TFSA to help individuals save for their first home. Contributions to an FHSA are tax-deductible, offering immediate tax relief, while investment income and gains grow tax-free. Withdrawals used for purchasing a qualifying first home are also tax-free, making the FHSA a cost-effective and efficient way to save for homeownership. The account provides annual and lifetime contribution limits, and funds must generally be used within a certain period after opening the account.
Age:
- Be at least 18 years old (or 19 if the legal age in your province is 19).
- Be 71 years or younger as of December 31 of the year you open your FHSA.
Residency:
- Be a Canadian resident.
- If you become a non-resident after opening an FHSA, specific rules apply.
First-time Home Buyer:
- You must be a first-time homebuyer, meaning you have not lived in a qualifying home as your principal residence that you owned or jointly owned in the current calendar year or the previous 4 years.
- The same condition applies to your spouse or common-law partner if you have one at the time you open the account.
Withdrawal: You can withdraw up to $35,000 from your RRSPs without tax withholding, provided you are the annuitant of each RRSP account. Some RRSPs, such as locked-in or group RRSPs, may not allow withdrawals.
Repayment: You must repay the amounts withdrawn within a 15-year period.
Eligibility: To participate, you must meet several conditions, including being considered a first-time home buyer unless you are participating in respect of a specified disabled person. Additionally, you must have a written agreement to buy or build a qualifying home.
Residency: You must be a Canadian resident from the time you make the withdrawal until you buy or build the qualifying home.
Intent to Occupy: You must intend to occupy the qualifying home as your principal place of residence within one year of buying or building it. If you are helping a specified disabled person, they must intend to occupy the home as their principal place of residence within one year.
Repeat Participation: You may participate in the HBP again if your HBP balance is zero on January 1 of the withdrawal year and you meet all other eligibility conditions.
You can transfer property between First Home Savings Accounts (FHSAs) or from your registered retirement savings plans (RRSPs) to your FHSAs without immediate tax consequences, as long as it is a direct transfer.
Direct Transfers: Direct transfers must be made between the financial institutions of the two accounts involved, using appropriate transfer forms.
FHSA Participation Room: Transfers from RRSPs to FHSAs should not exceed your unused FHSA participation room and do not restore your unused RRSP deduction room.
Non-Direct Transfers: Withdrawing property yourself and contributing it to another account is not considered a direct transfer, which could lead to taxable withdrawals.
Transfers from Spousal RRSPs: Transfers from a spousal RRSP to an FHSA must meet specific conditions. If your spouse or partner contributed to a spousal RRSP in the current or last two years, transfers from that account are not permitted.
Transfers Between FHSAs: Transfers between your own FHSAs do not reduce your unused FHSA participation room and require proper forms.
Other Registered Plans: You cannot transfer directly from Tax-Free Savings Accounts (TFSAs), Registered Pension Plans (RPPs), or other registered plans to your FHSAs.
Reporting Transfers: Your FHSA issuer will provide a T4FHSA slip indicating the total amounts transferred from RRSPs or spousal RRSPs to FHSAs. Transfers between your own FHSAs do not need to be reported.
Make sure to use the provided forms and adhere to the conditions to avoid tax consequences and maintain compliance.
You can make withdrawals or transfers from your First Home Savings Account (FHSA) to buy your first home or for other purposes. Depending on the circumstances, these transactions may or may not have tax consequences.
Tax-Free Withdrawals: Qualifying withdrawals (for purchasing a qualifying home) and designated withdrawals (to correct excess FHSA amounts) are tax-free.
Qualifying Withdrawals: These can be made if you meet specific conditions, such as having a written agreement to buy or build a qualifying home. These withdrawals are tax-free and do not require repayment.
Designated Withdrawals: If you have excess FHSA amounts, you can make designated withdrawals to eliminate them without tax consequences.
Taxable Withdrawals: Withdrawals that don’t meet the criteria for qualifying or designated withdrawals are considered taxable and must be reported on your tax return.
Transfers Without Immediate Tax Consequences: Direct transfers can be made from your FHSA to your RRSPs, RRIFs, or other FHSAs without immediate tax consequences.
Transfers to RRSPs or RRIFs: Transfers from FHSAs to RRSPs or RRIFs are allowed without immediate tax consequences as long as it’s a direct transfer.
Transfers Between FHSAs: You can transfer property directly between your own FHSAs without affecting your participation room.
Designated Transfers: If you have excess FHSA amounts, you can make designated transfers to correct them.
Transfers to Other Registered Plans: Direct transfers from FHSAs to RRSPs and RRIFs are allowed, but not to other registered plans like TFSA, RESP, or RPP.
Reporting: Your FHSA issuer will provide a T4FHSA slip showing qualifying withdrawals, taxable withdrawals, and designated withdrawals or transfers.
Keep records of all transactions and report them accurately on your tax return. Make sure to meet all qualifying conditions to avoid unintended tax consequences.
Contributions to First Home Savings Accounts (FHSAs) are generally tax-deductible on your income tax and benefit return in the year the contribution is made or in a future year, similar to RRSP contributions. However, transfers from RRSPs to FHSAs are not deductible.
For the year 2023, FHSAs can be opened starting from April 1, 2023, allowing individuals to deduct contributions made to their FHSA between April 1, 2023, and December 31, 2023. The lifetime limit for deducting FHSA contributions is $40,000.
To calculate your maximum deductible amount for the year, you take the lesser of the total of your annual FHSA limits minus prior deductions, $40,000, minus transfers from RRSPs. Any unused FHSA contributions may be carried forward for future deductions.
There are contributions and scenarios that cannot be deducted, including:
- Contributions made in the first 60 days of the year.
- Contributions made after the first qualifying withdrawal.
- Excess FHSA amounts designated as withdrawals.
- Any amounts that exceed the lifetime FHSA limit of $40,000.
- Transfers from RRSPs to FHSAs.
- Investment losses or administrative fees incurred within FHSAs.
Tax is imposed on excess FHSA amounts at a rate of 1% per month until the excess is eliminated. Additionally, any excess FHSA amounts may impact the deductibility of your contributions and should be managed carefully.
If you contribute or transfer more to your First Home Savings Account (FHSA) than your participation room allows, you may be subject to taxes. Here is a what happens if you exceed your FHSA contribution limits:
Excess FHSA Amount: This occurs when your total contributions and transfers to your FHSAs exceed your participation room for the year.
Tax on Excess FHSA Amounts: A tax of 1% per month is charged on the highest excess amount in a month. This continues until the excess is eliminated.
Removing Excess FHSA Amounts: You can reduce or eliminate excess amounts through designated withdrawals or transfers:
- Designated Withdrawal: A tax-free method where you withdraw an amount from your FHSA.
- Designated Transfer: A transfer from your FHSA to your RRSP or RRIF that is not counted as income.
Filing a Return: If you have an excess FHSA amount, you must file a return to report and pay the applicable tax.
Examples: Scenarios illustrate how excess FHSA amounts can occur and how they are addressed:
- Making an excess contribution due to forgetfulness.
- Transferring too much from an RRSP to an FHSA.
- Contributing and transferring too much, resulting in an excess FHSA amount.
In each case, the taxpayer must be aware of the 1% tax on excess amounts and must file a return to report and pay the tax.
When closing your First Home Savings Account (FHSA), you need to be aware of your maximum participation period and take the following steps:
When to Close an FHSA:
- The FHSA must be closed by December 31 of the year when one of the following occurs:
- The 15th anniversary of opening your first FHSA.
- You turn 71 years old.
- The year following your first qualifying withdrawal from your FHSA.
How to Close an FHSA:
- Removing Property: Before closing, transfer the property tax-deferred to your RRSP or RRIF or withdraw the property, which would be taxable and included as income in your tax return.
- Closing: Contact your FHSA issuer and follow their instructions to close your FHSA.
Examples:
- 15th Anniversary: Amber opened her FHSA in 2023 and will close it by 2038, either by transferring property to her RRSP or withdrawing the property as taxable income.
- Age 71: Sophia opened her FHSA at age 60 and must close it by age 71 in 2034, either transferring the property to her RRSP/RRIF or withdrawing as taxable income.
- First Qualifying Withdrawal: Pedro opened his FHSA in 2023, made a qualifying withdrawal in 2029, and must close his FHSA by the end of 2030.
Failure to Close FHSA:
- If you do not close your FHSA by the end of the maximum participation period, it loses its status as an FHSA, and any remaining property becomes taxable income.
Closing Process:
- Contact your FHSA issuer and follow their instructions.
- The issuer will provide confirmation once the FHSA is closed and report this information to the CRA.
Overall, closing your FHSA requires paying attention to the timing of your participation period, and transferring or withdrawing the property in a way that best suits your financial plan and minimizes tax consequences.
Several life events can impact an FHSA, including the breakdown of a marriage or common-law partnership, non-resident status, and the death of the FHSA holder.
Breakdown of Marriage or Common-law Partnership and FHSAs
Transfers: You may need to transfer property from your FHSA to your current or former spouse or common-law partner due to the breakdown of a relationship.
No Tax Consequences: Transfers can be made directly to your spouse or partner’s FHSA, RRSP, or RRIF without tax consequences, given specific legal requirements are met.
Excess FHSA Amount: If you transfer an amount beyond the fair market value minus your excess FHSA amount, you will face income tax on the transfer.
Opening an FHSA: You can open an FHSA after a relationship breakdown if you meet the eligibility requirements.
Non-Residents and FHSAs
Participation: Non-residents who already have an FHSA can continue participating but cannot make qualifying withdrawals for home purchases.
Withholding Tax: Any taxable withdrawals will be subject to a 25% withholding tax unless reduced by a tax treaty.
Reporting: Non-residents receive an NR4 statement for taxable withdrawals.
Death and FHSAs
Before Death: Transactions made before the holder’s death are treated normally.
After Death: No contributions or transfers can be made to a deceased holder’s FHSA, and distributions can only be made to designated beneficiaries or the estate.
Types of Beneficiaries: FHSA beneficiaries can be designated as successors, regular beneficiaries, or qualified doners.
Survivors: If the survivor is designated as a successor holder and is eligible, they become the new FHSA holder.
Taxation: Beneficiaries other than survivors must include received amounts as income, and the FHSA should be closed by the end of the exempt period to avoid losing its status.
Excess FHSA: If the deceased holder had an excess FHSA amount, the legal representative must address this and pay applicable taxes.
These life events can significantly affect how you participate in or benefit from your FHSA, so it is essential to understand the rules and obligations associated with each scenario.
Investments in an FHSA may include cash, mutual funds, most securities listed on a designated stock exchange, guaranteed investment certificates (GICs), and certain government and provincial savings bonds. FHSA holders can contribute or transfer foreign funds to their accounts, which are converted to Canadian dollars.
“In-kind” contributions or transfers of qualified property to an FHSA are allowed. Non-qualified investments or prohibited investments in an FHSA may result in taxes payable and reporting requirements. Tax on non-qualified investments is 50% of the fair market value of the property, while the tax on prohibited investments is also 50%. The 100% advantage tax applies to income earned and capital gains realized on prohibited investments.
Refunds of the 50% tax on non-qualified or prohibited investments may be possible if the FHSA trust disposes of the property or if the property ceases to be non-qualified or prohibited within the specified time frame. However, refunds are not issued if the FHSA holder should have known the investment was non-qualified or prohibited.
FHSA issuers are required to report relevant information on non-qualified or prohibited investments to FHSA holders and the CRA to determine taxes payable and potential refunds.
Your FHSA issuer provides a T4FHSA slip, showing transaction totals in your FHSA for the year, which you must report on your income tax and benefit return. Schedule 15 should be completed if you opened an FHSA, made contributions, transferred property from your RRSPs, made designated withdrawals, made qualifying withdrawals, or are claiming an FHSA deduction.
Key points to report include:
- Taxable withdrawals: Entered on line 12905 of your income tax and benefit return.
- FHSA beneficiary distributions received: Entered on line 12906.
- Amount deemed received on FHSA cessation: Entered on line 12905.
- Security for a loan: Entered on line 12906.
Filling out Schedule 15 includes:
- Reporting total contributions, contributions made after qualifying withdrawals, designated withdrawals, RRSP to FHSA transfers, and designated transfers from FHSA to RRSPs.
- Calculating and claiming the maximum FHSA deduction.
- Reporting qualifying withdrawals and home address.
It is crucial to ensure accurate reporting on Schedule 15 to avoid errors affecting FHSA participation room and unused FHSA contributions. Keep track of FHSA transactions and work with your issuer to correct any mistakes.
These are some of the ways to address and manage various FHSA-related tax matters, as well as the options available for taxpayers in case of disagreements or relief requests.
FHSA Tax Liabilities: Taxes may be due in situations like excess contributions, non-qualified or prohibited investments, and advantages. These taxes must be paid by June 30 of the year following when they arise.
FHSA Payment: Most FHSA holders have no taxes to pay and therefore do not need to file an FHSA return. When there are taxes due, the return and payment must be submitted by June 30.
Assessments and Reassessments: If an FHSA return is required but not filed, CRA may calculate tax based on provided information. Notices of assessment and reassessment show taxes, penalties, and interest due.
Disagreements: If you disagree with an assessment or reassessment, you can ask for an explanation or request adjustments. Formal disputes must be registered within 90 days of the notice date.
Waivers and Cancellations: Requests can be made to waive or cancel taxes on excess amounts or non-qualified/prohibited investments due to reasonable error.
Taxpayer Relief: Taxpayer relief provisions allow the CRA to cancel or waive penalties and interest due to circumstances beyond the taxpayer’s control, limited to a period within the past 10 years.
Requests: Relief requests can be made online or by form to the CRA, depending on the situation and location.
| EQ Bank | • Set interest rate on funds held within the FHSA • Can earn 3% interest or can purchase FHSA GIC (rates 4.25% – 5.50%) |
| Scotiabank | • Offering a limited-time promotional interest rate of 5% until January 31, 2024 |
| Questrade | • First company to offer an FHSA • Can invest in the FHSA through a Questrade self-direct account or through Questwealth Portfolios, their robo-advisor platform |
| Wealthsimple | • FHSA can be opened with Wealthsimple managed investing account or a self-directed investing account • With managed investing, Wealthsimple will invest your money on your behalf. • With a self-directed investing account, customers can invest in stocks and ETFs commission-free |
| Desjardins | • Offering a limited-time promotional interest rate of 5% |
| RBC | • FHSA can be opened through RBC Direct Investing (online brokerage) and RBC InvestEase (robo-advisor platform) • With RBC Direct Investing, customers can invest in stocks, options, bonds, ETFs, and GICs. No maintenance fees apply; however, account holders are charged $9.95 in commission fees for trading stocks and ETFs. • With RBC InvestEase, funds are automatically invested once the account balance reaches $100. Annual management fee of 0.5% of investment balance, plus applicable taxes apply. |
| National Bank | • No minimum balance or deposit is required • Customers can schedule a remove appointment with National Bank |
*Disclaimer: The information presented serves as a general overview and may not cover all aspects of the topic. Please note that certain details may have changed or may no longer be current. For a comprehensive and up-to-date understanding, please consult authoritative sources such as the Canada Revenue Agency (CRA) website or seek advice from a qualified professional. The user is responsible for conducting due diligence to verify the accuracy and relevance of the information before relying on it for decision-making.
HST New Housing Rebate
In Ontario, the HST new housing rebate allows homeowners to recover some of the Harmonized Sales Tax (HST) paid on a new or substantially renovated home. Here are the key details for calculating the rebate for Ontario homes.
- The home must be used as the primary place of residence by the purchaser or a relation.
- The home must be newly constructed, substantially renovated, or purchased from a builder.
- The total purchase price (including HST) of the home must be less than $450,000.
- You buy a new mobile home (including a modular home) or a floating home from a builder or vendor.
- You buy a share of capital stock of a co-operative housing corporation.
- Your home is destroyed in a fire and is subsequently rebuilt.
- The rebate calculation is based on the 13% HST paid on the purchase price or on the fair market value of the home (if owner-built).
- The maximum rebate amount in Ontario is $24,000. This consists of:
- Federal Rebate: The rebate is calculated as 36% of the federal GST (5%) portion of the HST paid on the purchase price up to a maximum of $6,300.
- Ontario Rebate: The rebate is calculated as 75% of the Ontario portion (8%) of the HST paid on the purchase price up to a maximum of $16,000.
- For a home with a purchase price of $350,000 (including HST), the calculation would be:
- Federal GST portion (5%) of HST: $350,000 * 5% = $17,500
- Federal rebate: $17,500 * 36% = $6,300 (maximum rebate reached)
- Ontario portion (8%) of HST: $350,000 * 8% = $28,000
- Ontario rebate: $28,000 * 75% = $21,000 (capped at the maximum of $16,000)
- In this case, the total rebate amount would be $6,300 (federal) + $16,000 (Ontario) = $22,300.
- Applications for the rebate must be submitted within two years of the date of the transaction’s completion.
- To apply, complete and submit Form RC7190 for owner-built homes or Form RC7191 for homes purchased from a builder.
- Documentation, such as invoices, contracts, and statements, must be provided with the application.
*Disclaimer: The information presented serves as a general overview and may not cover all aspects of the topic. Please note that certain details may have changed or may no longer be current. For a comprehensive and up-to-date understanding, please consult authoritative sources such as the Canada Revenue Agency (CRA) website or seek advice from a qualified professional. The user is responsible for conducting due diligence to verify the accuracy and relevance of the information before relying on it for decision-making.
Ontario Land Transfer Tax Refunds for First-Time Homebuyers
When you purchase land or an interest in land in Ontario, you are required to pay land transfer tax. First-time homebuyers may be eligible for a refund of up to $4,000 on this tax if they meet specific criteria, including being at least 18 years old and not having owned a home or interest in a home anywhere in the world before. The refund applies to all homes, whether newly constructed or resale, and can be claimed either at the time of registration or afterwards from the Ministry of Finance. The refund is proportional to the interest acquired by qualifying purchasers. Additionally, since January 1, 2017, eligibility for the refund is limited to Canadian citizens and permanent residents of Canada. Applications for the refund must be submitted within 18 months of registration.
- Land transfer tax is levied on all conveyances of land in Ontario.
- The tax is based on the value of the consideration (i.e., purchase price) and varies based on the value of the property.
- The tax rate is progressive, meaning it increases with the purchase price.
- Different rates apply to different price brackets:
- 0.5% on the first $55,000.
- 1.0% on the portion from $55,001 to $250,000.
- 1.5% on the portion from $250,001 to $400,000.
- 2.0% on the portion above $400,000.
- An additional rate of 2.5% on the portion above $2,000,000 for single-family residences and duplexes.
- First-time homebuyers may qualify for a refund of up to $4,000.
- To qualify, the homebuyer must:
- Be at least 18 years old.
- Not have previously owned a home or an interest in a home.
- If the homebuyer has a spouse, the spouse must not have owned a home while being the homebuyer’s spouse.
- Occupy the home as a principal residence within nine months of the transfer.
- The refund amount is capped at $4,000, regardless of the purchase price.
- The refund is proportionate to the interest acquired by the individual who qualifies as a first-time homebuyer.
- Claiming at registration: When registering the property, the refund can be claimed immediately, either electronically or by paper form.
- Post-registration: If the refund is not claimed at the time of registration, a claim for the refund can be submitted to the Ministry of Finance.
- Claiming time limit: First-time homebuyers must apply for the refund within 18 months after the date of registration.
- Certain types of transactions, such as gifts or inheritances, may be exempt from land transfer tax.
- Additional measures exist for trusts, joint ownership, and other scenarios.
- Toronto levies its own additional land transfer tax on top of the Ontario tax.
- The rates and structure mirror the provincial land transfer tax, with the same progressive brackets.
- Ensure proper documentation and evidence when claiming the first-time homebuyer refund.
- Track all important dates, such as the time limit for applying for the refund.
- Buyers should consult the Ontario Ministry of Finance website for the most current rates and eligibility criteria.
*Disclaimer: The information presented serves as a general overview and may not cover all aspects of the topic. Please note that certain details may have changed or may no longer be current. For a comprehensive and up-to-date understanding, please consult authoritative sources such as the Government of Ontario website or seek advice from a qualified professional. The user is responsible for conducting due diligence to verify the accuracy and relevance of the information before relying on it for decision-making.
First-Time Home Buyers’ Tax Credit (HBTC)
Introduced in 2009 under ‘Canada’s Economic Action Plan,’ the First-Time Home Buyers’ Tax Credit serves to aid Canadians in their inaugural home purchase journey. This initiative aims to alleviate the financial burden associated with closing costs, encompassing expenses like legal fees, inspections, and land transfer taxes.
Until 2022, the Home Buyers’ Tax Credit provided a rebate of $750 for all first-time homebuyers, based on prevailing taxation rates. However, in the 2022 budget, this rebate was doubled to $1,500. Following the purchase of your initial home, the credit must be claimed within the same tax year and is considered non-refundable. Furthermore, the property acquired must meet specific criteria outlined below. In cases where a home is purchased jointly with a spouse, partner, or friend, the combined claim cannot surpass $1,500 for 2022 and subsequent tax years or $750 for 2021 and earlier tax years.
- First-time home buyers can claim a non-refundable tax credit of up to $750 for acquiring a qualifying home.
- The credit amount is determined by multiplying $5,000 by the lowest personal income tax rate, which was 15% in 2022.
- Proposed changes will increase the calculation amount for the Home Buyers’ Tax Credit (HBTC) to $10,000.
- This adjustment would provide eligible home buyers with a tax credit of up to $1,500.
- All other rules regarding the credit and the increased limit remain unchanged.
- Eligibility for up to $10,000 credit for the purchase of a qualifying home in 2023:
- Conditions: acquisition of a qualifying home by you or your spouse/common-law partner
- Requirement: not living in another owned home in the year of acquisition or in the preceding four years, unless a person with a disability
- Single claim: Only one of the spouses/partners needs to meet the conditions to claim the amount
- Qualifying home criteria:
- Registration in Canada
- Intended occupancy within one year
- Includes various property types: single-family houses, condominiums, mobile homes, etc.
- Disability exemption:
- Not restricted to first-time home buyers
- Eligibility for the disability tax credit required
- Home acquisition for a related person eligible for the disability tax credit
- Tax return completion:
- Enter $10,000 on line 31270 if not splitting with spouse/partner
- Splitting allowed but total cannot exceed $10,000
- Total claimed cannot surpass $10,000 if multiple individuals entitled, such as joint home buyers
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