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Buying Your First Home in Canada? Here's What You Need to Know About Tax Breaks and Rebates
First-time home buyers in Canada have access to a variety of government programs designed to support their entry into the housing market. This article focuses specifically on Federal tax-related programs—most of which are administered by the Canada Revenue Agency (CRA).
Before you can qualify for any of these incentives, credits, or benefits, it is essential that you have filed your income tax returns.
In addition to the federal tax measures, we will also touch on provincial land transfer tax rebates available to first-time buyers.
A common requirement across all these programs is that the property must be intended as your primary place of residence. This highlights the government's intent: to help Canadians buy a home to live in, rather than an investment or secondary property.
First Home Savings Account (FHSA)
The FHSA is a registered account that allows a first-time home buyer to make tax-deductible contributions toward the purchase of a new home. Investment growth within the account is tax-free, and withdrawals are also tax-free, provided the withdrawn funds are for the purchase or construction of a qualifying home.
Individuals can contribute up to $8,000 per year, with a lifetime limit of $40,000. Couples can combine their accounts to save up to $80,000. If the account holder does not end up purchasing a home, the accumulated savings can be transferred tax-free into a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF). The account can remain open for up to 15 years, or until the end of the year in which a home is purchased—whichever comes first.
To open an FHSA, you must be under 71 years of age, and at least 18 years old or have reached the age of majority in your province of residence, whichever is greater.
Home Buyers' Plan (HBP)
The Home Buyers' Plan allows a first-time buyer to withdraw up to $60,000 from a Registered Retirement Savings Plan (RRSP) tax-free, to buy or build a qualifying home. This can also be done on behalf of a related person with a disability.
To maintain the tax-free status of the withdrawal, the amount must be repaid to the RRSP within 15 years. The obligation to repay begins in the second year after the withdrawal, although the participant may voluntarily begin to repay earlier.
If a required annual repayment is missed, that amount will be included as income for that tax year. However, the account holder may repay the full amount at any time or make larger payments than the required installment minimum for the year.
First-Time Home Buyers' Tax Credit (HBTC)
This allows you to claim a non-refundable tax credit of up to $1,500 following the purchase of a qualifying home. If the home is purchased jointly with another eligible person—such as a spouse, family member, or friend—the credit must be shared between the two buyers.
The credit must be claimed in the same tax year that the home is purchased. Additionally, persons with disabilities, or individuals purchasing a home on behalf of a related person with a disability, may be eligible for this credit even if they are not first-time buyers.
GST/HST New Housing Rebate
The GST/HST New Housing Rebate allows eligible buyers to recover a portion of the Goods and Services Tax (GST) or Harmonized Sales Tax (HST) paid on the purchase price or cost of a qualifying home. It applies to:
- Newly built or substantially renovated homes,
- Homes constructed or renovated by the buyer (or an agent) on owned or leased land,
- Conversions of non-residential properties into homes,
- Purchases of shares in a housing co-operative.
For the rebate to apply, all buyers must be individuals (not partnerships or corporations), and the buyer or a relative must be the first occupant of the home. If the property is sold before occupancy, the sale must qualify as an "exempt sale"—i.e., the seller is not considered the builder for GST/HST purposes and has not claimed input tax credits on the construction or renovation.
If the CRA deems the seller to be a builder—particularly if the intent was to sell rather than reside in the home—the sale will be considered taxable, and the rebate will not be available.
The GST/HST New Housing Rebate applies to homes valued at $450,000 or less. While commonly used by first-time buyers, this rebate is available to all qualifying Canadians, regardless of previous home ownership.
There is currently a legislative proposal for a first-time home buyer GST Rebate. This proposal aims to amend the Excise Tax Act to eliminate GST on first-time home purchases up to $1 million, and reduce it for homes priced between $1 million and $1.5 million.
Provincial and Municipal Land Transfer Tax Rebates
Land Transfer Tax Rebates provide partial refunds for the provincial or municipal land transfer taxes paid on the purchase of a first home. Provinces such as Ontario, British Columbia, and Prince Edward Island offer these rebates. Some municipalities also provide similar rebates, which may be independent of or complementary to provincial rebates.
The maximum rebate amount varies by province or municipality, and eligibility often depends on several factors, including the purchase price of the home and whether the buyer has previously owned a home.
Pro Tax Tip: A term Canadian Tax Lawyer Can Help You Unlock Hidden Home Buyer Incentives
Before purchasing a new home—whether as a first-time home buyer or otherwise—it is important to consult with an experienced Canadian tax lawyer. This ensures that you receive guidance tailored to your specific circumstances, including information on the programs for which you may qualify.
Many federal tax-related home purchase programs have provincial equivalents, and in some cases, a buyer may be eligible for a provincial program even if ineligible for the federal version. There may also be provincial programs with no federal counterpart. In addition, new programs may become available at the time of purchase.
All of this highlights the importance of consulting a Canadian tax lawyer who can help navigate this complex system of incentives—and potentially save a significant amount for you, in the long run.
Frequently Asked Questions (FAQs):
What are some of the tax-related government programs available to first-time home buyers in Canada?
Some of the tax-related Federal Government programs available to first-time home buyers in Canada include the First Home Savings Account (FHSA), the Home Buyers' Plan (HBP), the First-Time Home Buyers' Tax Credit (HBTC), and the GST/HST New Housing Rebate. Provinces and municipalities also offer programs—some similar and others different—including Land Transfer Tax Rebates.
What is the GST/HST New Housing Rebate, and who can claim it?
The GST/HST New Housing Rebate allows eligible buyers to recover a portion of the GST or HST paid on the purchase price or cost of a qualifying home. All buyers must be individuals (not partnerships or corporations), and the buyer or a relative must be the first occupant of the home.
What happens if an HBP – Home Buyers' Plan – repayment is missed?
If a required annual repayment is missed, that amount will be included as a person's income for that tax year and must be reported in the income tax return.
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.
