Spring is in the air --well, it will be here soon. It can be a busy time for real estate. So, while some look for the robin another good herald may be the first time homebuyer ("FHBs").
For FHBs, it's a challenge to save for the down payment and the costs that accompany a home purchase (legal fees (they are not that bad --honest), disbursements, land transfer tax, etc.). It's like the groundhog's shadow.
As we begin to thaw out, I touch on a few programs that recognize this challenge and are designed to assist.
First-Time Home Buyers' Tax Credit -- This tax credit can be claimed by eligible FHBs on income tax returns for the year of purchase. Presently, it provides tax relief up to $750.00. Where FHBs purchase together, they may choose to split the credit in proportion not exceeding $750.00.
Home Buyers' Plan (HBP) -- Under this program, FHBs may be eligible to withdraw up to $25,000.00 from their RRSPs tax free. However, the withdrawn amount must be repaid within fifteen years and minimum annual repayments are required. If payments are not made, they are included as income and taxed accordingly. Generally, the plan isn't available to locked-in or group RRSPs. Also, dipping into any RRSPs depends on your specific circumstances so appropriate profession advice is prudent.
Land Transfer Tax (LTT) Refund -- Usually, when you buy land in Ontario you're taxed based on the purchase price: 0.5% on the first $55,000 of the price, 1% of the amount between $55,000 and $250,000, 1.5% over $250,000 and 2% over $400,000.
FHBs may be entitled to up to $2,000.00 off LTT. Depending on the purchase price, this might cover all or a large part of the tax. The usual practice now is to claim the refund at the time of registration to offset LTT (rather than pay the full LTT and apply for a refund later).
Generally, an FHB means someone who has not owned a home before and whose spouse, while a spouse, has not owned a home before and the FHB needs to use the home as his or her principal residence. However, the qualifying conditions for an FHB vary between programs: if you qualify for one you won't necessarily qualify for another. For example, FHBs under the Tax Credit and HBP are determined, in part, as being without ownership for four years; FHBs under the LTT Refund cannot have owned a home at any time.
Anyways, enjoy the spring FHBs --you'll have to rake and shovel soon enough.
Adam Kowalsky is an associate at the law firm of Cobb & Jones LLP.