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What First-Time Home Buyers should know

 

Most first-time buyers want their dream home right away.  White picket fence, trees shading a huge yard, several thousand square feet of living space and a fully finished walk-out basement, overlooking a stream in the valley below.  You know the picture.  Your dream may be somewhat different, but just as appealing.

Reality soon sets in.  Our dream home sells for several hundred thousand dollars and the down payment is more than we earn in a year.  Not to mention the payments, which are three times our take-home salaries each month.

The best way to deal with this reality is to match your financial capabilities with the home that meets as many of your needs as possible.  Many first-time buyers purchase what is commonly known as a “starter home.”  There’s nothing wrong with this approach.  In fact, its good common sense to avoid buying a home that will stretch your budget to its breaking point.  Remember, the starter home is just that – a way to get started in long-term real estate investment.

 Before you purchase your first home you should know....

Purchasing a home is expensive so any opportunity to regain some of your money should be taken advantage of. For first-time home buyers, there are some options available so make sure you familiarize yourself with these rebates before settling into your new home.

1. First-Time Home Buyer Tax Credit (HBTC)

This is a non-refundable credit issued by the Government of Canada amounting to $750 which is intended to help the buyer recover the cost of closing fees. If you are purchasing a home under co-ownership, the maximum tax credit is still $750 combined. The credit must be included in your personal tax return under “line 369” within a year of purchasing the property.

What are the requirements?

  • The property must be a qualifying home*

  • You must not have owned a home as a primary residence in last four years

  • The home must be registered in your name (or your spouse’s)

*A qualifying home must be located in Canada, whether it is an existing or pre-construction property, which may be a single, semi, town home, mobile home, condo, as well as a multi-person dwelling. In addition, you must intend to occupy the home.

Special notes: If the total of your tax credit is greater than your federal income tax, you will not receive the HBTC.

2. The RRSP Home Buyer’s Plan (HBP)

This plan allows first-time buyers to withdraw up to $25,000 from their Registered Retirement Savings Plan (RRSP) completely tax free. This is a great option for two reasons:

i. The contributions you make to your RRSP are tax-deductible, which helps keep your tax statement in your favour (i.e. It could help reduce the amount owed or increase your tax return).

ii. The withdrawal from your RRSP is analogous to an interest-free loan; after all, you are taking out your money.

However, you must repay the full amount within 15 years time, starting no later than two years after the withdrawal of the funds.

What are the requirements?

  • You must not have owned a home as a principal place of residence, four years prior to the withdrawal

  • Intend to live in the purchased property within one year of closing

  • If you have used the HBP before, there must not be any outstanding balance

In order to apply for the Home Buyer’s Plan, visit Canada Revenue Agency and print a copy of Form T1036. Section 1 can be filled out by you, however, you will need your financial institution (that holds your RRSP) to fill out Section 2. In your income tax return for the year, you will have to reference the T4RSP from that your financial institution will send you.

3. Land Transfer Tax Rebate

This only applies to the provinces of Ontario, British Columbia, and Prince Edward Island. Also, it’s important to note that Toronto is the only city with a Land Transfer Tax at the municipal level, so likewise, to offset the large tax, a Land Transfer Tax rebate is also available for the City of Toronto in addition to the Province of Ontario. Each province listed above sets their criteria and calculations themselves.

To show you the variance between each region, take a look at our chart below.

For a $200,000 purchase:

Province

Provincial Land Transfer Tax

Land Transfer Tax Rebate

Amount Due

Ontario

$1725

$1725

$0

British Columbia

$2000

$2000

$0

Prince Edward Island

$600

0

$600

City of Toronto*

$1725

$1725

$0


For a $500,000 purchase:

 

Province

Provincial Land Transfer Tax

Land Transfer Tax Rebate

Amount Due

Ontario

$6475

$2000

$4475

British Columbia

$8000

$0

$8000

Prince Edward Island

$5000

$0

$5000

City of Toronto*

$5725

$5725

$0


*The City of Toronto Land Transfer tax is calculated independently from the Province of Ontario so you are made accountable to both if you live in Toronto. So although your amount due for a $500,000 mortgage is $0 in Toronto, you must still pay the $4475 Ontario Land Transfer Tax.

 

This article was provided by Ratehub.ca.

Posted by Sarah Davis, Sales Representative, Coldwell Banker Action Plus Realty

 

 

 

For More Information Contact 

Sarah Davis, Sales Representative

Coldwell Banker Action Plus Realty

20 Argyle Street, Simcoe, Ontario, N3Y 1V5

Business:  519-426-8816

Cell:  519-909-9690

Fax:  519-426-8817

Toll Free:  1-800-426-8816

sarah-davis@coldwellbanker.ca

www.sarah-davis.ca

 

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