Everything You Should Know About First-Time Home Buyers’ Tax Credit

An image of new home that has qualified for the First-Time Home Buyers' Tax Credit

Buying a home is every Canadian dream. With house prices touching the roof, it has become increasingly difficult for Canadians to buy a home. Hence, the Canada Revenue Agency (CRA) offers many benefits to Canadians who are buying their first home. However, as a homebuyer, you should know and claim these benefits by filling out the necessary forms. One such benefit is the First-Time Home Buyers’ Tax Credit (HBTC), also known as Home Buyers’ Amount (HBA). This tax credit can go up to $1,500, giving you some relief in the tax bill after the biggest purchase of your life.

How Does First-Time Home Buyers’ Tax Credit Work

The First-Time Home Buyers’ Tax Credit is a federal non-refundable tax credit on the cost incurred to buy your first home. These costs include legal fees and other administrative charges incurred to buy a home. The HBTC relives 15% federal tax on up to $10,000 of the cost incurred to buy the home. If you paid $8,000 in other costs, you can claim $1,200 in HBTC. And if you paid $12,000, you could claim $1,500 in HBTC as the upper limit is $10,000.

However, the HBTC is beneficial only in some cases. You can claim this benefit only in the year you purchased the house. If you miss out on claiming the credit, you cannot claim it next year.

Since it is a non-refundable tax credit, your tax bill will be reduced by the HBTC amount. If your HBTC is $1,500 and your tax bill for that year is $800, your tax bill will become $0, and no refund will be issued on the balance of $700. However, the CRA allows you to share the HBA with your spouse. If your tax bill is $800 and that of your spouse is $900, you can divide the $1,500 tax credit equally and reduce your total tax bill to $200 ($1,700 combined tax – $1,500 tax credit).

Do You Qualify for the First-Time Home Buyers’ Tax Credit?

Like every tax benefit, the First-Time Home Buyers’ Tax Credit has some eligibility criteria. The eligibility is checked on two fronts, it should be a first home purchase, it should be a qualifying home.

  • You or your spouse or common-law partner is buying a qualifying home, which includes single-family homes, semi-detached houses, townhouses, mobile homes, condominium units, apartments in duplexes, triplexes, fourplexes or apartment buildings, or a share in a co-operative housing corporation that entitles you to own and provides an equity interest. Note that a share in a cooperative housing corporation that gives you tenancy rights does not qualify.
  • You are a first-time home buyer, which means you did not live in a home you purchased in the last four years.
  • You will occupy the home as a principal place of residence within one year of purchase.

Exception For Disabled Person

The HBTC gives an exception to disabled persons eligible for the disability tax credit. They can claim up to $1,500 HBTC even if they are not the first-time home buyer.

  • You should have purchased the home for the benefit of a disabled family member. The home should be more accessible or better suited to the needs.
  • The disabled person must be related by blood, marriage, common-law partnership, or adoption.
  • The disabled person must occupy the home as their principal place of residence within one year of buying the property.

How To Apply for the First-Time Home Buyers’ Tax Credit

If you are eligible for the First-Time Home Buyers’ Tax Credit, you can enter $10,000 or the amount you incurred on the legal and other costs on line 31270 of your income tax return. If you are splitting this tax credit with your spouse, you both can put the $5,000 amount on line 31270. If you purchased the house for a disabled, you might get a call from the CRA to confirm your relation to that person.

When submitting tax returns, you don’t need to submit any documents. However, it is advised to store all the necessary documents for proof of house purchase for at least six years. These documents could come in handy if the CRA reviews your income tax returns in the future.

Other Tax Benefits for First-Time Home Buyers

The HBTC is just one of the tax benefits. It does not help reduce the financial burden on the cost of the house. However, the CRA offers various types of benefits to help first-time home buyers.

First Home Savings Account (FHSA): In April 2023, the CRA introduced the FHSA. You can invest up to $8,000 annually in FHSA with a lifetime limit of $40,000 and deduct the contributions from your taxable income. You can invest that amount in stocks listed on well-known exchanges, bonds, and other eligible instruments and let your money grow tax-free. You can also withdraw the amount tax-free to pay for buying your first house. If your $40,000 investment becomes $80,000 in the FHSA, you can withdraw the entire amount tax-free to pay for your first house.

Home Buyers Plan (HBP): You can use the Registered Retirement Savings Plan’s (RRSP) HBP that allows you to withdraw up to $35,000 tax-free for a down payment towards a new or resale home. However, you have to repay that money into the RRSP within 15 years, with repayments starting two years after the initial withdrawal.

Home Accessibility Tax Credit (HATC): While this tax credit is not linked directly to home buying, it allows disabled people to claim up to $20,000 annually on expenses incurred to make the home more accessible. You can get a 15% credit of up to $3,000, which you can deduct from your tax amount.

Contact  Edelkoort Smethurst CPAs LLP in Burlington for Tax Saving Advice

A skilled tax advisor can help you make your property buying tax-efficient by guiding you on how to fund your house to maximize tax savings. At Edelkoort Smethurst CPAs LLP , our tax experts can provide services to support your tax and estate planning function, whether you need partial or complete support. To learn more about how Edelkoort Smethurst CPAs LLP can provide you with tax planning expertise, contact us online by telephone at 905-517-2297.