Despite recent softening in the housing market, home ownership in Canada is expensive and can be intimidating if you’re a first-timer. Luckily, there’s financial help and incentives for first-time homebuyers, which can help offset the cost of purchasing a new home. You don’t need to feel as if you have to do it all alone – read below to see what incentives are available.
Incentives for First-Time Homebuyers
Home Buyers’ Plan (HBP)
The Home Buyers’ Plan (HBP) offers an alternative way of securing funds for a down payment for first-time homebuyers. This program, administered by the Canada Revenue Agency (CRA), allows you to tap into your retirement savings for homeownership without the usual tax penalties that would apply to RRSP withdrawals.
If you have a Registered Retirement Savings Plan (RRSP), you may withdraw up to $60,000 from the account to buy or build a qualifying home for yourself or a related person with a disability. Both you and your spouse or common-law partner can each withdraw up to $60,000 under the HBP, potentially giving qualifying couples access to $120,000 for their home purchase. You then have a 15-year period to replace the funds in your RRSP.
You can withdraw funds from more than one RRSP as long as you are the owner of each account. However, some RRSPs, such as locked-in accounts or group RRSPs, do not allow you to withdraw funds, so you need to check to make sure that your RRSP is eligible. The withdrawal must be completed within a single calendar year to qualify under the HBP, though you can make multiple withdrawals within that timeframe.
For the purpose of the HBP, you are considered a first-time homebuyer if you did not occupy a home that you have owned within the last four years. The four-year period begins on January 1 of the fourth year before the year you withdraw funds and ends 31 days before your withdrawal. This means that if you have previously owned a home, you may still be considered a first-time homebuyer and can take advantage of the HBP a second time as long as the balance has been paid as of January 1 of that year and you meet all other requirements.
First Home Savings Account
The FHSA combines the features of a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP), providing Canadian residents with the benefit of tax-free withdrawals and tax-deductible contributions. However, the money can only be withdrawn tax-free when used to purchase a home. If you decide not to use your FHSA for a home purchase, you can transfer the funds to your RRSP or RRIF without affecting your RRSP contribution room.
The annual contribution limit is $8,000, and unused contributions can be carried forward. So, if you open an FHSA and deposit $4,000 in 2024, your contribution room and carry-over amount for 2025 will be $12,000. The lifetime contribution limit is $40,000.
To be eligible, you must be at least 18 years old, a Canadian resident for tax purposes, and a first-time homebuyer, meaning you and your spouse have not owned a home in the current calendar year or the previous four calendar years. FHSAs can be held for a maximum of 15 years or until the end of the year you turn 71, whichever comes first.
First-Time Home Buyer Incentive
The First-Time Home Buyer Incentive was a shared-equity program administered by the Canada Mortgage and Housing Corporation (CMHC) that offered eligible first-time buyers 5 percent of the purchase price for existing homes or 5-10 percent for newly constructed homes. This program was designed to help reduce monthly mortgage payments without increasing down payment requirements. However, as of March 31, 2024, the First-Time Home Buyer Incentive has been discontinued and is no longer accepting new applications or approvals.
Tax Credits for Homebuyers
While a couple of incentives are available before you purchase your first home, the help doesn’t stop there. The Government of Canada also offers several tax credits and rebates available for first-time homebuyers. A tax professional can work with you to see how much you are eligible to get back in the following tax season when you submit your tax return.
Home Buyers’ Amount – This tax credit becomes available to first-time homebuyers the following year when they file their tax return and is intended to help offset some of the upfront costs of buying a house. You can claim up to $10,000 for purchasing a qualifying home, provided it is your first home purchase.
GST/HST Housing Rebates – The sales of new homes are generally subject to GST/HST, and these tax rebates help to offset some of the tax you paid on your home.
Moving Expenses – If you bought your first home in a new location to work, run a business, or study as a full-time student in a post-secondary institution, some of these costs can be refunded. You can deduct eligible moving expenses from the income you earn in the new location in that tax year. Your new home must be at least 40 kilometres closer to your work or school location to qualify.
First-Time Home Buyers’ GST/HST Rebate – The Government of Canada has proposed a new rebate designed to help first-time home buyers recover more of the tax they pay on a new home. This proposed rebate would complement the existing New Housing Rebate program but would specifically target first-time buyers. Details are still being finalized, and the program is not yet available.
If you want to enter the housing market but are hesitant due to the price, consider the financial assistance and incentives available to first-time homebuyers. One of them could be the boost you need to get you into your first home.
