02-06-2025
With a new GST rebate coming, here's a refresher on other tax breaks for first-time homebuyers
The federal government is moving ahead with a new GST rebate for first-time homebuyers, which may complement existing programs aimed at making housing more affordable.
Advisors who help clients, or their clients' children, navigate the purchase of a first home can broaden and deepen their relationship with both the client and family.
'It ends up putting you in situations in which you're having more holistic conversations with a client,' says Jason Heath, a managing partner at Objective Financial Partners Inc. in Markham, Ont.
While some tax programs for first-time homebuyers are well known, others are sometimes overlooked and missed, Mr. Heath says.
In general, to qualify for these federal tax programs, a first-time homebuyer is someone who has not lived in a home that they or their spouse or common-law partner owns either in the current year or any of the previous four years.
Here are the key programs and credits that already exist, in addition to the proposed new first-time homebuyers' GST cut.
The FHSA, introduced in 2023, allows a first-time homebuyer to save up to a lifetime limit of $40,000 toward a home purchase.
Annual contributions of $8,000 (plus up to a maximum of $8,000 of carry-forward contribution room) to the FHSA are tax-deductible, while withdrawals from the account to purchase a qualifying home, including any growth, are tax-free.
Ideally, a first-time homebuyer would open and begin contributing to an FHSA at least a few years before buying a home, Mr. Heath says, because FHSA contribution room begins to accumulate only after someone opens an account.
However, a first-time homebuyer can still open an FHSA in the year they buy a home and contribute $8,000 before making a withdrawal. That's because there's no minimum number of days that contributions must be held in an FHSA before being used to make a qualifying withdrawal.
What is a qualifying withdrawal? An FHSA withdrawal counts as a qualifying withdrawal if the account holder has a written agreement to buy or build a home by Oct. 1 of the following year, or has bought a home within 30 days before making the withdrawal.
Also, the FHSA holder must not have lived in a home they owned in the year of withdrawal or any of the previous four years. Whether the FHSA holder lives in a home their spouse or partner owns isn't a determining factor when making a qualifying withdrawal.
The HBP allows a first-time homebuyer to borrow from their RRSP to buy a home without being taxed on the amount. Last year, the federal government increased the amount that can be borrowed to $60,000 from $35,000.
'The old limits didn't allow you to access very much RRSP money,' Mr. Heath says, so the increased amount might allow for a bigger down payment.
The borrowed amount generally must be paid back in instalments over 15 years. If the annual minimum repayment isn't made, that amount becomes taxable.
Under a temporary change made last year, for withdrawals between Jan. 1, 2022 and Dec. 31, 2025, instalment payments don't have to begin until five years following the year of withdrawal, up from two years under the regular HBP rules.
Unlike the FHSA, contributions to an RRSP must remain in the plan for at least 90 days before they can be withdrawn for purposes of the HBP.
The Income Tax Act allows first-time home buyers to access both the FHSA and the HBP to purchase the same home.
And spouses and partners can each use their own FHSAs and access the HBP to buy the same house.
The HBA allows a first-time homebuyer to claim a non-refundable tax credit of $1,500 (which is calculated as 15 per cent of the $10,000 HBA). While the HBA is meant to help first-time homebuyers offset costs associated with buying a new home, those claiming the amount don't have to track expenses.
If both spouses qualify as first-time homebuyers, the amount can be split between spouses but the total credit remains $1,500.
(The Liberals have proposed a cut to the lowest income tax bracket from 15 per cent to 14 per cent, effective July 1, which would affect the value of the credit.)
Mr. Heath says eligible homebuyers sometimes miss claiming the HBA if their tax software doesn't prompt them or if they don't inform their tax preparer that they've bought their first home. The credit is claimed in the year the home is acquired.
Provinces and cities may offer their own tax breaks or credits for first-time homebuyers. For example, Ontario provides first-time homebuyers with a land transfer tax rebate, as does the city of Toronto.
