Home buyer incentives

Home buyer incentives

The federal government has provided multiple financial incentives to encourage builders to build more new homes to meet the demands of both homeowners and the rental market. This includes repurposing federal land to build new homes, removing the Goods and Services Tax (GST) on new rental housing construction and additional low‑cost financing for rental housing construction. The following are additional measures intended to make home ownership more affordable and long‑term rental more available.

Crackdown on non‑compliant short‑term rentals

One of the perceived barriers to affordable long‑term rental is the proliferation of short‑term rentals such as Airbnb and Vrbo. Short‑term rentals used to be limited to 1 or more rooms in a home that were rented out by the homeowner. Now it is common to see entire homes rented out on a short‑term basis, meaning these units are removed from rental housing inventory. Many municipalities have regulations prohibiting short‑term rentals (30 days or fewer) in other than the primary home of the owner, but these rules are not always enforced.

For example, Toronto’s regulations require registration of such properties and the collection of a 6% Municipal Accommodation Tax.

No more than 3 rooms can be rented, and records must be kept as to the number of nights they are rented and the price paid. It is also necessary to keep track of whether the entire home or individual rooms have been rented.

Similar regulations exist in other Ontario municipalities.

Under rules announced in the 2023 Fall Economic Statement, short term rentals that are non‑compliant with municipal restrictions will not be able to claim rental expenses. In today’s high interest rate environment, the inability to claim expenses such as mortgage interest may be a significant deterrent to some owners and cause them to reconsider the use of the property.

The following are federal and provincial measures to ensure first‑time home ownership is more affordable. Some will be familiar to you, but others may come as a surprise.

First-time home buyer incentives

When it comes to the first‑time home buyer incentives listed below, you need to confirm you qualify as a first‑time home buyer. In Ontario, a first‑time home buyer is someone who hasn’t owned a home previously here or anywhere else in the world. If you have received your first home as a gift or inheritance, the Ontario government will not consider you a first‑time home buyer.

The requirements are different for the various tax incentives, and it is necessary to review the rules carefully to ensure you qualify.

Ontario land transfer tax rebate

If you qualify as a first-time home buyer in Ontario, you could be eligible for the provincial land transfer tax rebate. The rebate is up to $4,000 for homes priced over $368,000. The land transfer tax is not applicable for homes priced below this value. This can make quite a difference when budgeting for your new home.

To qualify for the refund, you must:

  • Be at least 18 years old
  • Be a Canadian citizen or permanent resident of Canada
  • Live in the home you’re purchasing within 9 months
  • Apply within 18 months of registration

If you’re married, you’ll also need to take into account your partner’s property history because it could affect your ability to claim the refund. If your partner acquired a home individually while you’ve been married, then neither of you would be eligible for the tax refund. But, if your partner’s property was purchased or inherited before you got married, you could still be able to claim some of the refund.

First-time home purchase rebate (Toronto)

As a first-time home buyer, you could qualify for a rebate of up to $4,475 if you're purchasing a new-build or a residential resale property in Toronto. All of the same requirements for the Ontario land transfer tax rebate apply for this rebate. It is possible to qualify for both.

The Home Buyers’ Plan

The Home Buyers’ Plan (HBP) is a program offered by the Canadian government to help first‑time home buyers get into the market. If you’re eligible, you can withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) towards the down payment on your first home. If you and someone else are buying a home together, you can withdraw from your individual RRSPs a combined $70,000. The withdrawal is tax‑free as long as it’s paid back within 15 years, or included in income the amount which should be repaid.

To qualify for the HBP, you must:

  • Be a first-time homebuyer
  • Be a resident of Canada
  • Use the home within a year of purchasing it or building it

A first-time home buyer for the purpose of the HBP is someone who has not lived in a home you or your partner had owned in the year of purchase and the 4 prior calendar years.

The First-Time Home Buyer Incentive

The First-Time Home Buyer Incentive has been discontinued. The deadline for new or updated submissions is midnight ET on March 21, 2024. Taxpayers who are able to submit the application by March 21, 2024 may be eligible for the incentive if closing date is 6 months from time of application approval (for existing homes) or 18 months from the time of application approval (for existing home). Applications received before the deadline will be processed promptly. No new approvals will be granted after March 31, 2024.

The First-Time Home Buyer Incentive is a shared equity program with the Canadian government and can help you if you're struggling to come up with a down payment. Eligible Canadians can apply for a loan worth either 5 or 10% of a home’s purchase price, but there’s a catch.

When you eventually pay back the loan, you’ll be required to pay the equivalent of 5 or 10% of the property’s then current value. While it’s a great tool to help Canadians get into the market, the downside is you don’t know how much your home’s value will be in the future, and you will be paying the government a percentage back ⁠–⁠ not a set amount. Let’s say you purchased a home for $600,000 and borrowed 5% of the value for the down payment, which would be $30,000. You would owe the government 5% of the final sale price. So, if you held on to the home for 8 years and sold it for $950,000, you would have to pay the government back $47,500 (5% of $950,000).

First-Time Home Buyer’s Tax Credit (HBTC)

The tax credit was introduced as part of Canada’s Economic Action Plan 2009 to assist Canadians in purchasing their first home. It was created to help recover closing costs like legal expenses, inspections and land transfer taxes that can add up for first-time home buyers. The rebate amount was doubled to $1,500 in 2022 (i.e., 15% of $10,000). The credit may be split between spouses.

To qualify for the home buyers’ amount, you must:

  • Buy an eligible home
  • Include it with your personal tax return under line 31270 of your schedule 1
  • Be a resident of Canada
  • Intend to live in the home within 1 year of purchase

A first-time home buyer for the purpose of the HBTC is someone who has not lived in a home you or your partner had owned in the year of purchase and the 4 prior calendar years. You can qualify for both the HBP and the HBTC for the same home as long as you qualify under both sets of criteria.

GST/HST new housing rebate

The GST/HST new housing rebate is available to Canadians who buy a newly built home, significantly renovate an existing home or rebuild a home that was destroyed. If you qualify, the rebate allows you to recover some of the Goods and Services Tax (GST) or the federal part of the Harmonized Sales Tax (HST) you paid toward these purchases.

In addition to the various better‑known incentives described, there are other local homeowner programs offering financial assistance and support to encourage first‑time home buyers to settle in the area. Many of these programs have generous repayment terms.

Home affordability is a major issue for most new home buyers. Location of your new home may impact the incentives available, and the ultimate cost of the home. The attractiveness of the different incentives may vary depending on whether you prefer a cash rebate (generally a lower amount) instead of mortgage assistance. The cost of the home is substantially lowered if you qualify for more than one incentive. It is important to weigh these options when you decide on the affordabililty of a home. Don’t miss any incentives which you may be eligible for. Many of the programs have criteria that are independent of each other and you may be eligible for more than one.

Don't miss any incentives

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