Incentives for First-Time Homebuyers

Hasan Riaz, Dennis Reynolds
| 2/22/2022
The journey towards owning a first home can be a pleasant and joyous one. A goal that many Canadians want to achieve during their lifetime. However, as the current real estate market continues to experience an increase in home prices and demand outpaces supply, the realization of home ownership is becoming ever so more difficult for many Canadians. Luckily, if you’re a first-time homebuyer, there are several government programs designed to support individuals entering the housing market.

Home Buyer’s Plan

The most frequently inquired about program available to first-time homebuyers is the Home Buyer’s Plan (“HBP”), which allows a first-time homebuyer to withdraw up to $35,000 from their Registered Retirement Savings Plan (“RRSP”) to use towards a down payment on their first home. This program enables individuals to withdraw from their RRSP on a tax-free basis provided that the individual pays back the amount to the RRSP within 15 years on a straight-line basis.

Under the HBP, the homebuyer must begin to repay the withdrawal back in the second year after the year in which the initial amount was withdrawn. For example, if the homebuyer withdraws the funds in 2022, the first year of repayment would be 2024. It should be noted that the homebuyer is permitted to begin the repayment process prior to this date and is entitled to repay more than the minimum annual repayment amount should they choose. If the homebuyer repays less than the minimum annual amount, the difference is included in their income and is subject to tax.

The Canada Revenue Agency (“CRA”) provides participants in the HBP with an annual statement within their notice of assessment or reassessment. This statement indicates the amount repaid through the HBP so far, the remaining HBP balance owing and, the required HBP repayment for the following year. Although repayments to the HBP are considered RRSP contributions by the CRA, repayments to the HBP do not affect the homebuyer’s RRSP deduction limit.

Home Buyer’s Tax Credit

The Home Buyer’s Tax Credit is an incentive program that enables eligible homebuyers to claim a $5,000 non-refundable tax credit in the year the homebuyer purchases a home. To qualify, the homebuyer must:

  • Purchase a qualifying home in their own name (or a spouse or common-law partner);
  • Not have purchased a property in which they resided in the last four years;
  • Not have a spouse or common-law partner who has purchased a property in which neither have resided in the last four years; and
  • Use the property as their principal residence.

First-time Home Buyer Incentive

The First-time Home Buyer Incentive allows qualifying buyers to receive an interest-free loan of either five per cent or 10 per cent of the purchase price to be applied towards a down payment. The First-time Home Buyer Incentive is not like a traditional loan; rather, no later than 25 years of ownership or when the property is sold, the buyer will be required to pay back either five per cent or 10 per cent of the fair market value of the property instead of the initial loan amount.

Tax-Free Home Savings Account

During their re-election campaign, the Liberal government proposed a new tax-free home savings account where Canadians under the age of 40 could invest up to $40,000 and withdraw it tax-free if the amount is used towards a down payment on a home. While this initiative offers the opportunity to earn investment income tax-free similar to the Tax-Free Savings Account and provides a larger withdrawal than the HBP, no legislation has been proposed to introduce this program, so it is not an available option for first-time homebuyers at this time.

Given that the Canadian real estate market is showing no signs of slowing down, first-time homebuyers should consider the many incentives available to them as they pursue home ownership. If utilized effectively, these programs can perhaps make the goal of acquiring a first home more attainable.

This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.

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