Spring is here and housing sales are at their annual peak. While Ottawa doesn't offer much in the way of incentives for you to buy a house, first-time buyers get a tax break and you can borrow money from your RRSP to help finance a purchase. In addition, there are some complex GST rules on rebates that depend on whether the property is new or used. Here are some of the top tax issues of buying and selling residential real estate.

Make the Most of Tax Breaks

Spring -- time to air out and clean the house, change seasonable wardrobes and, for many, shop for a new home.

The GST Factor

Despite the federal tax credit, the purchase price of new homes and the land they are on is subject to GST.    However, you may receive as much as a 36 per cent rebate, depending on the amount you pay for the dwelling.    If you buy a primary residence for $350,000 or less, you are eligible for the rebate. The rebates decline gradually for new homes that cost between $350,000 and $450,000.    New homes selling for $450,000 or more do not qualify for a rebate, and used, or resale, residential properties are exempt from GST.    A used home is one that has been occupied as a residence before you buy it or a new house that is substantially complete and was sold at least once -- but unoccupied -- before you buy it.

This is busiest time of the year for real estate deals, primarily because parents are thinking about the new school year. They want to be in their new homes when the new school term starts. On average it takes two to three months to complete a purchase and officially take ownership.

But parents aren't the only buyers who want to move during the warmer months. Some people are looking ahead to retirement and want to downsize to a home that is easier to maintain. In addition, low interest rates and job growth are bolstering the housing industry's current health.

If you are planning to purchase a home, you won't get a large incentive like the one Washington provides to our southern neighbors. Ottawa doesn't let you deduct mortgage interest from your taxes. In this country, the tax benefits of owning a home come when you sell it, not while you are paying for it.

When you sell a residential property you can take advantage of the principal residence exemption. That lets you make a profit on the sale without declaring it as taxable income.

This exemption does not apply to rental-income property. If you own a second property, such as a rental unit or a cottage, it will be subject to capital gains tax when you sell it or if you bequeath it.

So, if you paid $25,000 for a cottage years ago and it is now valued at $1 million, you or your heirs, will have a $975,000 capital gain. Half of that ($487,500) is taxable, typically at the highest rate. In the case of your heirs, if one or more of them cannot afford to pay, or does not want to, the others may be forced to sell. There are solutions, though. For example, you can:

1. Take out a permanent life insurance policy to cover the tax; or

2. Sell the cottage to your heirs while the capital gain is still reasonable. For example, if the value of the cottage climbs to $300,000 -- with prospects of going higher -- consider selling it to your heirs with the understanding that you will still be using it. Your capital gain would be $275,000. If you and your spouse or partner are joint owners, you can split the tax evenly on the $137,500 tax bill.

Incentives to Buy

There are some tax incentives for buying a house. For example, if you reside in Canada and are either a first-time home buyer or haven't owned a home for five years, you can take advantage of the Home Buyers Plan. That allows you to borrow as much $25,000 tax free from your Registered Retirement Savings Plans (RRSPs) to help finance the purchase. You must start paying back the money in two years and repay it in full within 15 years. RRSP contributions of up to 90 days before the withdrawal date can be used toward the Home Buyers Plan.

You can start paying back the money earlier, which will reduce the amount you must repay for the first year. If your early payments exceed the amount required in the first year, the difference will lower your remaining installments over the 15 years, but you must still pay annually. Your remaining payments will also decline if you pay more than is required in any year.

You will receive a Home Buyers' Plan Statement of Account with your annual Notice of Assessment once Canada Revenue Agency (CRA) has processed your tax return. The statement takes into account additional payments and shows the amount of your next payment.

If you do not repay 1/15 of the amount each year, the portion not paid must be included in your taxable income. And the home must be purchased or built before October 1 after the year you withdraw the money.

Keep in mind that when you take advantage of the Home Buyers' Plan, the money you borrow will no longer be available for earnings growth within your RRSP. You might want to discuss ways to compensate for that with your accountant and decide whether it makes financial sense for you to save for a down payment with a Tax-Free Savings Account (TFSA).

If you are buying your first home, you can take advantage of the $5,000, non-refundable First Time Home Buyers' credit. That tax break is meant to help offset closing costs, land transfer fees and other expenses you are hit with when you buy a house. Regardless how much you spend, you can claim the full credit.

You are considered a first-time buyer if neither you nor your spouse or common-law partner has owned and lived in another home in the year you buy the new house or in any of the preceding four years. The credit is also available to individuals who are eligible for the disability tax credit, or a person buying a home for a disabled relative, as long as the house is acquired as a more accessible dwelling.

The credit is calculated by multiplying the lowest personal income tax rate for the year (15 per cent for 2011) by $5,000. Your spouse or partner may claim any portion of the credit you do not use. If you buy the home together, you can share the credit. The dwelling must be in Canada and you or your spouse or partner must plan to occupy it as your principal place of residence within a year after you buy it.

Rental Properties

If you borrow money to buy or repair a rental property, arrange the loan in a way that makes the interest tax deductible. So, instead of increasing the mortgage on your principal residence to get a down payment, consider taking out a second mortgage from the same lender at the same interest rate as the original mortgage. The same holds true for lines of credit. If you need to repair the bathrooms in your principal residence and the rental property, take out separate lines of credit.

You can deduct interest payments on loans to acquire or improve rental property and interest on credit cards for goods or services used in a rental activity. In addition, you can fully deduct the cost of repairs to rental property, provided they are ordinary, necessary and reasonable, in the year in which you spend the money.

Your accountant can help you come up with other tax-saving strategies if you are planning to buy a primary residence, second home or rental property or if you plan to leave property to your heirs.