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Tax benefits when purchasing your first home

January 24 2018 by Multi-Prêts Hypothèques
What you'll learn
  • Home Buyers’ Plan (HBP)

  • First-time home buyer’s tax credit 

We often talk about all the expenses, especially the unforeseen ones, that come with the purchase of a first home, but it’s also important to bring up the advantages.

Building an estate. No longer having to deal with a landlord who’s quick to cash checks, but much slower to fix faulty plumbing. Having the freedom to tear down a wall to get that super-sized room you’ve always dreamed of. In short, being the master of your domain!

Beyond these considerations, did you know there are also tax benefits that come with purchasing a property? 

couple moving in their new house

Home Buyers’ Plan (HBP)

Thanks to this federal program, you can borrow up to $25,000 from your RRSP without paying taxes. Since it is a loan, you have to start paying it back in the second year following the withdrawal.

For couples, two eligible partners can each take part in the home buyer’s plan and withdraw up to $25,000 each. The amount is not transferable from one partner to another. For blended families, it is also possible that one partner is eligible while the other is not.

You will then have 15 years to repay the entire amount, reimbursing 1/15 each year. If, over a given year, the minimum amount isn’t repaid, you will be taxed on this amount in the next fiscal year.

Note that any amount earmarked as an RRSP reimbursement cannot be written off as a deduction in your income tax report. As such, it does not affect your RRSP deduction limit. However, your reimbursements can go towards your Pooled Registered Pension Plan (PRPP) or Specified Pension Plan (SPP). 

How to become eligible for the Home Buyers’ Plan

You are not eligible if you’ve lived in a property that you (or your partner) owned over the past four years. Specifically, this period stretches out from January 1st of the fourth year prior to the withdrawal, up until 31 days prior to the withdrawal.

For example, if the withdrawal occurs on May 31, 2018, the affected period would range from January 1, 2014, to April 30, 2018. This means that even if you have been a home owner in the past, you could be eligible for the plan if you meet the eligibility requirements.

A written agreement for the construction or purchase of a property must also be in place. You must have the intention of using the property as your primary residence for the first year after purchase or construction.

For the property to be eligible, it must be purchased or built before October 1 of the year that follows the withdrawal. Under certain conditions, it is possible to be granted an extension.

Note that different conditions apply if you are a person with a disability or are helping a related person with a disability. Refer to the federal government website or ask your mortgage broker for more information. 

Lastly, it is possible to take advantage of the HBP more than once in your lifetime. This does, however, require that you meet the usual requirements, as well as have a zero HBP balance on January 1 of the year of the new withdrawal.

Find out more about the HBP here

First-time home buyer’s tax credit (HBTC)

You must meet the same requirements as the HBP to obtain this non-refundable tax credit of $5000. After applying the non-refundable tax credit rate, you could be looking at a tax break of up to $750. You don’t have to take part in the HBP to gain access to this tax credit.

In every case, you can count on a Multi-Prêt broker’s advice to guide you in your projects. 

Key takeaways
  • HBP: Thanks to this federal program, you can borrow up to $25,000 from your RRSP without paying taxes.
  • HBTC: After applying the non-refundable tax credit rate, you could be looking at a tax break of up to $750.
  • You are not eligible if you’ve lived in a property that you (or your partner) owned over the past four years.
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