The Government of Canada offers two major incentives for first time home buyers. The Home Buyers’ Plan (HBP) and the First-Time Home Buyers’ Tax Credit (HBTC) can help you save money when buying your first home. Let’s find out a little bit about each of these incentives and how they can help.
1. Home Buyers’ Plan
The HBP allows you to withdraw up to $25,000 from your RRSPs to buy or build a home for yourself or a related person with a disability. To qualify, you must be a resident of Canada purchasing your first home. You also qualify if it has been at least 4 years since you last owned a home. Here are a few more details of the HBP:
- If you are buying a home with a spouse, they may also withdraw up to $25,000.
- The money being withdrawn must have been in the RRSP account for at least 90 days.
- You have up to 15 years, starting the second year after withdrawal, to repay the RRSP. Your yearly repayment will be 1/15th of the amount you withdrew. If you do not contribute to your RRSPs for one or more of these years, the amount is added to your income at tax time.
Why Use the HBP?
The HBP is one of the only ways you can take money out of your RRSPs tax-free. It is a great way for people with RRSPs to put a downpayment on a new home.
But what if you don’t have an RRSP? The HBP can still benefit you! Many people planning to buy their first home open up an RRSP account to start saving for their downpayment. By putting their savings into an RRSP account, they receive a credit/refund at tax time. This can either be added to their savings or used to help pay for other expenses.
For more information see the Canada Revenue Agency’s Home Buyers’ Plan webpage.
2. First-Time Home Buyers’ Tax Credit
This incentive, part of Canada’s Economic Action Plan, gives first time home buyers a $5000 tax credit for the year in which they buy their first home. This credit can be shared or split with a spouse but cannot exceed $5000 total. This tax credit is applied to your income tax return, which means you can receive up to $750 worth of tax relief from the government.
Like the HBP, to qualify for this incentive, the home you purchased must be used as your principal residence. Simply mention to your tax preparer that you bought a qualifying home during the year and they can help ensure you receive your credit.
The Home Buyers’ Plan and First Time Home Buyers’ Tax Credit are great incentives offered to first time buyers by the Canadian Government. If you are interested in finding our more, please feel free to Contact Us and we will be happy to help.