You’ve done it. After years of hard work, saving and making smart investments, you can finally afford to purchase your first home. Now what?
For many, the home buying process can be very overwhelming. From dealing with bankers, real estate agents, and lawyers, seeking out the necessary accounting advice is not usually top of mind. Fortunately, below you can find a list of opportunities and tax incentives available to a first-time home buyer. This information includes what you can and can’t deduct, available tax credits, and other tips to make you a tax-savvy homeowner.
First-time Home Buyers’ Tax Credit
As the name implies, this tax credit is only available to a first-time home buyer. To be considered a first-time home buyer, you cannot have owned a home or lived in a home owned by your spouse within the last four years. You must also have the intention of living in the home within one year of purchase, so this tax credit is not available to people purchasing a rental property. This tax credit can be worth up to $750, and the application process is relatively straightforward. If you’ve purchased a home in the last year and believe you qualify for this tax credit, be sure let your accountant know to claim it on your return.
Land Transfer Rebate
Again, this is only available to first-time home buyers. When you buy land or an interest in land in Ontario, you pay a land transfer tax. The Land Transfer Rebate provides a full rebate on the land transfer tax paid on a home purchase up to a maximum purchase price of $368,000. For homes purchased above that threshold, the rebate is capped at $4,000. This provides an added tax incentive to make your first home purchase as it lowers the initial costs of home ownership.
RRSP Home Buyers’ Plan
The Canadian Government has also implemented the Home Buyers’ Plan, allowing you to withdraw up to $25,000 tax-free from an RRSP ($50,000 for a couple) to assist in financing a down payment on a house. This amount must be repaid within 15 years of the date withdrawn, at a minimum rate of one-fifteenth of the total amount withdrawn each year. However, it can be repaid faster depending on cash flow and personal preference. One (minor) caveat is that the funds must be deposited into your RRSP for a minimum of 90 days prior to the date of withdrawal. You will also be required to present written documentation indicating that you have agreed to buy a home.
If you move more than 40 kilometers closer to your place of employment (either by changing jobs or moving closer to an existing job), you may be eligible to claim your associated moving costs on your tax return. This will help to reduce your taxable income, and thus your taxes payable. Qualifying moving expenses include legal costs, real estate fees, transportation and storage costs, temporary living expenses and travel expenses, among others. If you’ve moved closer to your principal place of employment and believed you may qualify to claim these expenses, it’s important to speak to your accountant to ensure you’re maximizing your deduction.
While there are several opportunities available to reduce the after-tax cost of your first home purchase, it is important to schedule a meeting with your accountant to review the numbers before making such a substantial investment. If you’ve recently made your first housing purchase, be sure to let your accountant know so they can take advantage of these deductions on your behalf.
Contact your local RLB Advisor today at 1-866-822-9992, or email firstname.lastname@example.org.
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