Tax Breaks for First-Time Home Buyers

How Much Can I Borrow?

November 2012

Buying your first home is a big deal… and a big financial commitment. But you can get a little bit of help through tax breaks from the government. Let’s take a quick look at what’s available.

Home Buyers’ Plan (HBP) – Normally, withdrawals from your RSP are considered taxable income. However, through the Federal Government’s Home Buyers’ Plan, you can withdraw up to $25,000 from your RSP for the purchase of your first home, and will not have to pay income tax on the money you’ve withdrawn. There are a few conditions:

  • You must be a Canadian resident, and you must not have owned a home within the last 5 years
  • The amount you’re withdrawing needs to have been in your RSP for at least 90 days before you can withdraw it.
  • Before you apply to withdraw the funds, you must have a written agreement to buy or build the home. Having only a mortgage pre-approval is not sufficient.
  • You can’t have owned the home for more than 30 days before you make your withdrawal.
  • You must plan to occupy the home as your primary residence within 1 year of buying or building it.
  • You must repay the amount you withdraw within 15 years.

First-time Home Buyers’ Tax Credit (HBTC) – This is a non-refundable tax credit. In other words, you can claim it on your tax return to reduce the amount of income tax you pay. But since it’s non-refundable, if the credit is more than the tax you owe, you will not get money back as a result. Here’s how it works:

  • To calculate your credit amount, multiply $5,000 by the lowest possible personal income tax rate, which is currently 15%. So the HBTC for 2012 is $750 ($5,000 X 15% = $750).
  • You have to have purchased your home within the current tax year. So if you bought or are buying your home in 2012, you’d claim the HBTC when you file your 2012 taxes.
  • To be considered a first-time home buyer for this credit, you can’t have owned and lived in another home within the year of your new home purchase, or in any of the previous 4 years.
  • The tax credit can be split between people jointly buying a home.

Land Transfer Tax (LTT) Refund – In some provinces and municipalities where LTT is charged upon the purchase of a home, first-time home buyers may qualify for a refund of at least some of the tax. In Ontario, for example, the LTT Refund is up to $2,000 for first-time home buyers. And in municipalities such as Toronto, where an additional LTT is charged, a similar refund may be available for the municipal tax. Check with your local governments to see if you are entitled to this kind of tax refund.

To help find out what size mortgage you qualify for, why not call/e-m/txt us today?

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