Since January, I've been actively looking for a house somewhere in Ontario. The process has been very educational and there were a lot of things that I would have done differently if I had known earlier. So from the perspective of a first-home buyer within Ontario, Canada here are some tips and things you should be aware of.
First-Home Buyers Tax Credit
The Home-Buyers Plan or HBP lets you take up to $25,000 out of your RRSP and use that money towards a down payment. Now this $25,000 needs to be paid back over the course of 15 years, interest-free & you don't have to start paying that money back for 2 years.
- This is only applicable for your first home purchase
- It's $25,000 per person on the Mortgage. You and an S.O. can put in $50K combined.
- The money must be in your RRSP for at least 90 days.
- You must have the necessary space in your RRSP - 18% of your yearly income for all years applicable up to a maximum of $25,370 for 2016.
So what is an RRSP? An RRSP is a financial vehicle which will reduce your income for the year under the assumption that whatever money you put in will be fully taxed when taken out. Whatever money get's put in, you will either receive the tax back or reduce the tax you owe on that amount. My personal reference to see how much money you'll get back during tax season via RRSP is located here.
So based on the defaults from the reference above - if you make 75,000$ and you put in 13,500$ into your RRSP(the max rate of 18%) - in Ontario, you will receive or be in surplus of ~4,000$. If you were planning on putting money in for a downpayment anyways - why wouldn't you want to get the extra $4000 during tax season?
As this is interest-free - you are also beating inflation which is at a rate of ~1.5-2.0% a year in Canada.
Land-Transfer Tax Refund for First-Time Homebuyers
The Land-Transfer Tax Refund or LTT is a refund given by the Ontario government that will rebate you up to $4,000 dollars on your Land-Transfer tax fee. When purchasing a house - the province will charge you a tax for the ownership of the land being transferred. These rates vary so a calculator comes in hand to figure out how much your Tax will be. Here is a great calculator for finding how much your LTT will be.
You can ask for an instant rebate of this and you don't have to wait for your tax refund.
First-Time Homebuyers Tax Credit
The First-Time Homebuyers Tax Credit or HBTC is a credit the government gives you back to help for lawyer fees, closing fees and inspection fees. If you live in your new home for a full year - you can claim a credit on the lowest taxable income percentage x $5,000. Currently the lowest taxable income % is at 15% so: 15%*5,000$ = 750$ you'll get back at tax time. This credit must be claimed within a year of purchase and is on line 369 of your Tax form.
Buying a home is getting incredibly difficult - especially in the GTA or Vancouver area. Hopefully, you take full advantage of these credit's & grants to help alleviate the financial burden of a first home.