As a first time home buyer, it’s essential to familiarize yourself with various programs and incentives that can make the home buying process more affordable. Here, we’ll discuss some key first-time homebuyer programs and options that you’ll want to be aware of.
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First Time Home Buyer: RRSP Home Buyer’s Plan
The Home Buyers’ Plan (HBP) allows you to withdraw up to $35,000 tax-free from your Registered Retirement Savings Plans (RRSPs) to fund your down payment. The money must be in your RRSP for at least 90 days before the purchase to be valid. You must start repaying the amount borrowed from the RRSP two years after you buy, over a 15-year period.
More details: RRSP Home Buyer’s Plan
First Time Home Buyers Program: Property Transfer Tax Exemption
One of the key costs involved in purchasing a property in British Columbia is the Property Transfer Tax. However, as a first-time home buyer, you may be eligible for exemptions and tax credits that can help ease the financial burden.
Property Transfer Tax in British Columbia
The Property Transfer Tax is a provincial tax levied on property transactions in B.C. The tax rate is based on a tiered system and is calculated as follows:
1% on the first $200,000 of the property’s fair market value
2% on the balance up to $2,000,000
3% on any remaining balance above $2,000,000
Further 2% on residential property over $3,000,000
If you are a first-time home buyer purchasing a property valued at less than $500,000, you may be eligible for a full exemption from the Property Transfer Tax. Partial exemptions are available for properties valued between $500,000 and $525,000. To qualify for the full exemption, you must meet the following criteria at the time the property is registered:
- Be a Canadian citizen or permanent resident
- Have lived in B.C. for 12 consecutive months immediately before the property registration date or filed at least 2 income tax returns as a B.C. resident in the last 6 years
- Have never owned an interest in a principal residence anywhere in the world at any time
- Have never received a first-time home buyer’s exemption or refund
First Time Home Buyer’s Tax Credit
To further assist first-time home buyers in Canada, the government offers the First-Time Home Buyer’s Tax Credit. This non-refundable credit helps offset costs such as legal fees, inspections, and other closing expenses associated with the purchase of a property.
As of 2023, the First-Time Home Buyer’s Tax Credit is set at $10,000, resulting in a maximum tax rebate of $1,500 (previously $750 until the 2022 budget was approved). This credit provides valuable financial relief for first-time home buyers navigating the real estate market.
More details: First Time Home Buyer’s Tax Credit
First Time Home Buyer Incentive
This shared equity mortgage (loan) offered by the government invests in the property with you. The incentive is not interest-bearing and does not require ongoing payments, but you must repay the loan within a 25-year period or when sold, whichever comes first.
The First-Time Home Buyer Incentive is a joint-equity mortgage program in partnership with the Canadian Government, providing:
- A 5% or 10% contribution for first-time purchasers of newly built homes
- A 5% contribution for first-time purchasers of resale (existing) homes
- A 5% contribution for first-time purchasers of new or pre-owned mobile/manufactured homes
More details: First Time Home Buyer Incentive (FTHB Incentive)
GST New Housing Rebate
In British Columbia, first-time homebuyers purchasing newly built homes can apply for a GST credit from the government and/or the developer. The full general rebate is for homes under $350,000 intended as the buyer’s permanent residence, with partial rebates up to $450,000.
The GST in BC is 5%, and eligible homebuyers can receive a rebate of 36% of the 5% GST. There are different rebate tiers based on the price of the home and its intended use as a permanent residence.
For homes priced below $350,000, buyers can receive a full rebate. Let’s look at an example:
If a new home costs $350,000 excluding GST, the total GST would be $17,500 (5% of $350,000). The GST New Housing Rebate would be 36% of $17,500 (5% GST), which equals $6,300. Therefore, the net GST payable after the rebate would be $17,500 (5%) minus $6,300 (rebate), which equals $11,200.
For homes priced between $350,000 and $450,000, the rebate decreases gradually and can be calculated using the following formula:
$6,300 x [$450,000 – purchase price] / $100,000
For instance, if a new home costs $400,000 excluding GST, the GST New Housing Rebate can be calculated as:
$6,300 x [$450,000 – $400,000] / $100,000
This results in a rebate of $3,150. The total GST for the $400,000 home would be 5% of $400,000, which equals $20,000. Subtracting the partial GST New Housing Rebate of $3,150 from the total GST, the net tax payable would be $16,850.
In summary, first-time homebuyers purchasing newly built homes in BC can apply for a GST credit that varies depending on the home’s price. This rebate can help lower the overall cost of purchasing a new home.
More details: GST New Housing Rebate
Tax-Free First Home Savings Account (FHSA)
On December 15, 2022, Bill C-32 (Fall Economic Statement Implementation Act, 2022) was granted Royal Assent by the federal government. This legislation brings changes to the Income Tax Act, introducing the Tax-Free First Home Savings Account (FHSA) to support aspiring first-time homebuyers.
The FHSA permits individuals to save up to a lifetime limit of $40,000, with a maximum annual contribution of $8,000 over five years, tax-free towards purchasing their first home. The FHSA will be effective from April 1, 2023. For more information about this new account, consult your financial institution or visit the Government of Canada’s website on the FHSA.
Additionally, most provincial governments offer land transfer tax refunds to first-time homebuyers, and mortgage loan insurance is available from the Canada Mortgage and Housing Corporation (CMHC).
Understanding these programs and taking advantage of the ones that apply to your situation can potentially save you thousands of dollars on your first home purchase. Research each program, consult with professionals, and maximize your buying power as a first-time homebuyer.