This article was originally published in the inFocus Summer
The Toronto real estate market continues to be one of the
fastest growing markets in North America. With low interest rates
and tremendous returns, our market has caught the eyes of many
foreign investors. Over the years, increasing demand has led to
increasing prices. Within this market, there is a buyer segment,
which is seemingly being squeezed out - young professionals wanting
to purchase their first home.
Below are various strategies and tax credits that decrease the
financial burden of purchasing a first home:
Home Buyer's Plan
The Home Buyer's Plan (HBP) is a Canadian Federal Government
Program allowing eligible first–time homebuyers to borrow up
to $25,000 from their Registered Retirement Savings Plans (RRSP)
for the purchase of their first home. If married, both spouses may
each withdraw these funds on a tax-free basis or possibly
tax-deferred basis for a total withdrawal of up to $50,000.
Homebuyers then have up to 15 years to repay their RRSP(s),
commencing the second year after the withdrawal(s). The repayment
schedule is calculated as the total amount withdrawn divided by 15
years. On a maximum withdrawal of $25,000, should a home buyer
choose not to repay their loan, in a given year, $1,667 will be
added to their taxable income.
For individuals who chose not to contribute to their RRSP, and
have saved their down payment within a Tax Free Saving Account
(TFSA) or another investment vehicle, it may not be too late.
Homebuyers can top up their own and/or spouse's or common-law
partner's RRSP to the $25,000 maximum allowable HBP withdrawal
amount. The funds must remain in the registered account for at
least 90 days before withdrawing under the HBP and the homeowner
will benefit from the current year RRSP deduction by offsetting
income taxed at their top marginal rate.
First-Time Home Buyer's Tax Credit
The First-Time Home Buyer's Tax Credit (HBTC) is a
non-refundable tax credit available to those who have purchased a
qualifying home. The value of the tax credit works out to be $750.
The credit is then claimed on the taxpayer's personal income
tax return in the year of the home purchase.
Land Transfer Tax Refunds for First-Time Homebuyers
A major cost often overlooked by Ontarians purchasing a
home is land transfer tax. Those considering a home in Toronto also
face an additional municipal land transfer tax. For example, the
current land transfer tax (both provincial and municipal portions)
on the purchase of a $750,000 home in Toronto is $22,200. There is
some relief for those who qualify as first-time homebuyers. The
rebate available to first-time homebuyers is up to $2,000 for the
Ontario component and up $3,725 for the Toronto component.
Some additional real estate related tax advice to bear in
Principle residence exemption
Capital gain earned on the sale of your home can be eliminated
if it is designated as your principle residence. As of 1982, a
married couple may designate only one principle residence. Prior to
this, couples could have more than one principle residence. For
situations where there is more than one property that may be
designated as a principle residence (i.e. a cottage), one will need
to choose and declare the principle residence. This should be the
property with a greater appreciation in value. However, there are
other considerations, such as tax deferral opportunities, to
Loans or gifts to family members to purchase a principle
For individuals looking to transfer assets to their adult
children, while avoiding income attribution, consider loaning or
gifting funds, which will be used to purchase their principle
residence. This will essentially decrease the individual's
savings base subject to tax while the transferred funds will not be
subject to tax in the hands of your adult children (see Principle
Residence Exemption above).
If you have questions on any of the content above, feel free to
contact a Crowe Soberman advisor who will be happy to assist.
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