Over the past year, we have spoken with a few people who have bought homes, some of whom were eligible for various government programs and rebates. There are a few different programs available now – some are new and some have changed.
If you’re in the market to buy a home, especially if you are a first-time buyer, here are four government programs to be aware of:
First Time Home Buyer Incentive
This program is the newest, just coming into effect on September 2. Effectively, the government is saying if you can save a partial down payment (a minimum of 5%) we’ll loan you an additional 5% for a resale home or 10% for a new build! It sounds great, but there are some catches:
Catch #1: When you sell your home or after 25 years, you have to repay your loan, but not just the amount they loaned you. Let’s say you’re buying a $400,000 condo and you have $40,000 and the government loans you another $40,000 for the down payment. They effectively own 10% of your condo. If you sell it ten years later and it’s worth $800,000, you have to pay them $80,000.
Most homeowners make improvements over the years, whether it’s finishing a basement, renovating a kitchen or other upgrades. Guess what – the government doesn’t take that into consideration, they’re still going to take their percentage of the value of your home, which is something you need to calculate before taking the loan.
According to the government website you are able to pay back the loan in full at any time.
Catch #2: You can only buy a home valued at up to four times your annual salary, which maxes out at $120K. So even in a best case scenario, the home can’t cost more than $480K.
If you earn more than $120K, you are ineligible. And if you earn less than 120K, you can only qualify for 4 times the amount of your salary, so if you’re earning 80k (nothing to sneeze at) you can only buy a home for $320K which limits your options in the GTA.
The Home Buyers Plan
This plan has been around for decades. It allows first time buyers to withdraw up to $35,000 from their RRSP tax free as long as it’s paid back within 15 years. If two people are buying the house, they can each withdraw that amount for a total of $70,000.
Of course, you’re going to lose out on some of the growth you’d have seen over the 15 years, but it’s a small price to pay for having access to the funds.
There is some confusion around repayment, but you don’t have to do anything special. Simply make a regular contribution to your RRSP and the CRA allots that to your repayment.
If you don’t contribute to your RRSP in any given year, the CRA adds add 1/15th of the total to your income, so it’s taxed as though you made a withdrawal. So continue to contribute!
First Time Home Buyers Tax Credit
This is a $5,000 non-refundable income tax credit for first time buyers. The wording is slightly deceiving because you can only get back a maximum of $750.
The key words are ‘non-refundable’. The way these credits work is they all get pooled together (including things like tuition) and then multiplied by 15%, which is where you get $750 which is then deducted from your tax bill.
However, you’re still paying $750 less in taxes which goes a long way at Home Depot, a place most new homeowners spend a lot of time.
GST/HST New Housing Rebate
The one rebate not exclusive to first-time home buyers.
If you buy a new house or condo on which you are paying GST/HST, you may be eligible to get back some of the purchase price.
One thing to note is that you’re unlikely to see a refund of all the tax you’re paying as the credit amount goes down once the purchase price hits $400K. The reasoning for this is that the government is trying to help people get into the housing market, so if you’re knocking down an old home on the Bridal Path and replacing it with a $10M mansion, they don’t think you really need the refund.
Developers will often tell buyers about the program because it lowers the actual cost of the unit. The form is fairly straightforward, it’s just time consuming. We can help with the forms for a flat rate, but there are opportunistic companies which offer to fill out the paperwork for a percentage of the rebate, which is way too much in my opinion.
It’s important to us that our clients know what they are doing. We can give them the forms and let them know that it’s something they can do, but if they don’t want to, we’re available.
Other resources:
https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive
https://www.cmhc-schl.gc.ca/en/buying/financial-information-and-calculators/government-of-canada-programs-to-support-homebuyers