Purchasing a house in Canada is tricky at the best of times, but getting into the property market for the first time is especially tough. To help with some of the costs of buying your initial home, there exists a range of programs for eligible first-time homebuyers. It’s a good idea to learn about these programs to avoid leaving money on the table.
These are the five biggest first-time homebuyer programs in Canada. Some aren’t available in every province, so we’ve noted where that’s the case.
1. Land transfer tax rebates
One of the largest closing costs when purchasing a home is the land transfer tax, which is charged in every province except Alberta and Saskatchewan. The City of Toronto also charges a land transfer tax on top of the Ontario tax. Land transfer tax rates are generally between 0.5 and 3.0 per cent of the home purchase price.
To help manage the cost of land transfer tax, Ontario, British Columbia, Prince Edward Island, and the City of Toronto offer rebates for first-time homebuyers. These programs reimburse some, or all, of your land transfer taxes. Each location has a maximum rebate, listed below:
- City of Toronto: $4,475
- Ontario: $4,000
- British Columbia: $8,000
- Prince Edward Island: $2,000
If you’re buying the home with someone who is not a first-time homebuyer, this may prevent you from qualifying for some, or all, of the rebate. Different eligibility rules apply for each location. Some governments require that you’ve lived in the province for a certain amount of time to claim the rebate. Others require that your home’s property value be less than a certain amount. Check your government’s website for exact qualification requirements in your location.
2. The Home Buyers’ Tax Credit
The Home Buyers’ Tax Credit (also referred to as The Home Buyer’s Amount) lets first-time homebuyers claim $5,000 of a property purchase on their tax return. With current tax rates, that results in a $750 rebate.
You’ll need to claim this credit on your tax return in the year you buy the property. You can split the credit between two returns for joint purchases, but the overall claim can’t exceed $5,000.
3. GST/HST New Housing Rebate
When you purchase a newly built house, construct a new house, or make substantial renovations to your existing home, you’ll be charged GST or HST. The GST/HST New Housing Rebate reimburses a portion of this.
This rebate isn’t exclusive to first-time homebuyers, but many first-time buyers use it when purchasing a new home. Eligibility and rebate amounts depend on the province your home is located in. You can claim the rebate within two years of buying your new house, or from when construction was completed.
4. The Home Buyers’ Plan
The Home Buyers’ Plan (HBP) is not a credit. Instead, it’s a way for you to increase your down payment with money from a Registered Retirement Savings Plan (RRSP), thus increasing how much mortgage you can afford.
First-time homebuyers can withdraw up to $35,000 from an RRSP, but it’ll need to be repaid (on a non-deductible basis) within 15 years to avoid a penalty. Any amount withdrawn needs to have been in the RRSP for at least 90 days - if not, those contributions may not be tax-deductible.
It’s important to consider the long-term financial implications of this program. While borrowing from your RRSP can increase what you can afford today, you may sacrifice outsized returns that could have come from maintaining your RRSP.
5. The First Time Home Buyer Incentive
This program is also not a rebate. Rather, the First-Time Home Buyer Incentive is a shared-equity mortgage with the Canadian government. With this program, the government takes a 5 to 10 per cent stake in your home, with you retaining exclusive access.
This lets you buy a home with a smaller deposit and lowers your monthly mortgage payments. The government contribution needs to be repaid within 25 years, based on the home’s market price at the time the incentive is paid back. This means that if your home’s value goes up, then the government also benefits from the increase. The same is true should your home’s value decrease. If the home is sold before the contribution is repaid, the government receives its applicable share from the sale.
This program is interesting, but it doesn’t suit everyone. Firstly, not all homebuyers will want a shared-equity mortgage. Secondly, the incentive has some very specific eligibility criteria, which limit the types of buyers the incentive is useful for.
Are you a first-time homebuyer?
To be eligible for most of these programs, you’ll need to be considered a first-time homebuyer. Keep in mind that some programs have additional eligibility factors. Check with your local government or a local mortgage professional to be sure.
Here are some key factors that could affect your eligibility as a first-time homebuyer:
First-time homebuyers: You’re generally considered a first-time homebuyer if you have not previously had any ownership stake in a home at any time. However, for federal government programs, you can qualify as a first-time homebuyer so long as you have not occupied a home that you (or your spouse or common-law partner) own in the year of your new home purchase and the four years prior.
Owner-occupied: The property you’re buying generally needs to be your main residence. Exact rules vary, but you’ll typically need to move in shortly after purchase.
Residential status: You’ll need to be a resident of Canada to apply for most first-time homebuyer programs. Some programs also require you to be a permanent resident or Canadian citizen. Moreover, some programs and provinces require you to have lived in a province for a certain time period.
Co-buying: If you’re a first-time homebuyer but your buying partner isn’t, you may only be able to claim a portion of a program.
People with disabilities: There are special rules and additional rebates for people with disabilities. Many first-time homebuyer programs can be claimed by people with a disability multiple times, subject to certain conditions.
The bottom line
As a first-time homebuyer in the 21st century, you’ll want every bit of help you can get. The programs available in Canada go a long way towards making buying a home easier and more affordable.
If you need more information or advice, it could be worth speaking to a mortgage professional such as a mortgage broker. Along with providing advice, mortgage brokers can often find you better mortgage deals than you would have found yourself.
For more government resources, check out the links below:
- Land Transfer Tax Rebates: Ontario, B.C., P.E.I., Toronto
- The Home Buyers’ Tax Credit
- GST/HST New Housing Rebate
- Home Buyer’s Plan
- First-Time Home Buyer Incentive
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