Canada: Helpful Tips When Buying Your First Home In Toronto

Last Updated: August 19 2014
Article by Aaron Goldstein CPA, CA

This article was originally published in the inFocus Summer '14 Issue.

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 The repayment schedule is calculated as the total amount withdrawn divided by 15 years.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 mind:

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 consider.

Loans or gifts to family members to purchase a principle residence

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.

For more information on the Home Buyers Plan, read one of our previous tax tips articles located on our website. Search for You may be closer than you think to landing your dream home.

About the Author

Aaron is an Audit & Advisory manager at Crowe Soberman. He is familiar with the challenges entrepreneurs face; and working with them, he is able to see clients overcome setbacks and reach their goals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Aaron Goldstein CPA, CA
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