Guest Post: First-time home buyer freebies and credits
NOTE: The following guest post is from Kerri-Lynn McAllister, Community Manager for RateHub.ca
It always amazes us in the mortgage industry how consumers will try to save a few dollars here and there via coupons, loyalty cards, etc – yet, when it comes to their mortgage, the same effort is not put forth. Not only should you compare mortgage rates and seek advice on products and terms, as a first-time home buyer, you should also be aware of the programs available to you that help recoup some of your investment, amounting to hundreds and even thousands of dollars.
Here are the programs and how you can apply for them.
1. First-time home buyers’ tax credit
Who doesn’t want $750? It’s as easy as filling out a line on your tax return for first-time home buyers. The credit request must be filed in the same tax year the property was purchased, and you must not have owned a home as your primary residence within the last four years.
The $750 credit was created to help first-time buyers recover some of the closing costs on their first property, so recover away!
How? File under line 369 on your tax return [1].
2. Land transfer tax rebates
Provincial land transfer taxes can hit you hard and unexpectedly, and if you live in Toronto, twice. [Toronto is the only municipality to have a tax on top of the provincial levy] Thankfully, much of this can be recovered through rebates if you are a first-time buyer in the provinces of Ontario, British Columbia, Prince Edward Island and the city of Toronto.
Land transfer tax fees are mandatory with any title transfer. First-time home buyers, however, can reclaim the full value of the tax up to a limit of $2,000 in Ontario, the full value for properties up to $425,000 in BC, and up to $3,725 in Toronto. In PEI, first-time buyers are exempt from paying the tax altogether if the property is less than $200,000 [2].
You can calculate provincial land transfer tax charges, including rebates, using a land transfer tax calculator.
How? Talk to your real estate lawyer.
3. RRSP Home Buyers’ Plan
This last one is less a rebate and more a savings strategy for your down payment – but, it involves a number of tax credits worth including here. The RRSP Home Buyers’ Plan (HBP) allows first-time buyers to withdraw from their RRSPs tax-free up to $25,000 for a down payment on a property purchase [3]. Any contribution that you make to an RRSP is, of course, tax deductible at the time, but if you try to withdraw these funds before retirement, you must repay the tax credits. Herein lays the magic of the Home Buyers’ Plan: you not only can withdraw the funds tax-free for your first down payment, but when you make contributions to your RRSP prior to this, you can re-invest your tax savings every year for the purpose of your future home purchase.
The HBP withdrawal is considered a loan and you will have to repay your RRSP within 15 years. However, you do not have to pay interest because you are essentially paying yourself back.
How? Print off a copy of Form T1036 online from the Canada Revenue Agency. Fill out Section 1 and get the financial institution that holds your RRSP to fill out Section 2. Your institution will then send you a T4RSP form, which will verify the amount you withdrew from your RRSP through the HBP. Reference the form in your income tax return for the year you made the withdrawal.
A little effort goes a long way
Considering the time commitment required to cut out coupons that get you a few dollars in savings (unless, of course, you are an Extreme Couponer), filling out some extra tax forms hardly seems laborious! Plus, we’re not talking dollars and cents here: we’re talking hundreds and thousands of dollars at stake.
What other first-time home buyer freebies and credits can you think of?
Kerri-Lynn McAllister is the Community Manager for RateHub.ca, a site that compares the best mortgage rates in Canada and provides first-time home buyer education and tools. Follow me on Twitter @RateHub_Canada.
6 Responses to “Guest Post: First-time home buyer freebies and credits”
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In the U.S., a first-time homebuyer can take out $10,000 in contributions from the Roth IRA to pay for the home without penalties. We also had some limited time deals during the financial crisis, but there’s nothing else on the books now.
Just as an aside, I always thought real estate in the U.S. were expensive (I’m living in the top 5 cities in the U.S. in terms of cost of living), but I read from Krystal that Vancouver is more expensive than NYC or London when you compare prices to income. How can anyone earning a normal income afford a home!?
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But if you withdraw from your Roth IRA to pay for your down payment, do you ever get that room back? I like the idea of the RRSP Home Buyer’s Plan better because you pay yourself back, so you’re not completely losing that tax-deferred or tax-free contribution room.
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Great tips. I live in the U.S., so when I bought my house I got $8,000! It was so nice to have.
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The RRSP homebuyer plan is a great way to get started in your first home. Keep in mind you can use the money for related costs as well…the whole amount doesnt have to be used for a downpayment.
Its important to remember the funds have to be in the account for 90 days or more in order to use them under the plan.
Another great feature is the repayment period starts the second year following the year you made your withdrawal.
@Well Heeled above – yes, Vancouver is indeed more expensive than NYC. Having lived in both cities for the past 15 years, I can definitely attest to that.
But quality of life in Vancouver is way better than NYC for sure.
-Rosaline
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Thanks for the tips Blair. I think those two points [90 days, repayment period] are very important details and will add them to the content on our website!
Alyssa
-Founder RateHub.ca