Credits For First Time Home Buyers

Buying a first time home buyer can be a very scary process at times.  Many times buyers are investing everything they have into the largest purchase they will probably ever make. Luckily the government of Ontario offers some great incentive programs to slightly ease the financial stress.. Below are four important programs that every first time home buyer should know about.


First-time Home Buyers’ Tax Credit

Program: First-time home buyers may be eligible for a 15 per-cent income tax credit for closing costs

Details:

• To assist first-time home buyers with the costs related to the purchase of a home.

• The First-Time Home Buyers’ Credit (FTHBC) provides a 15 percent credit on a maximum of $5,000 of home purchase costs(e.g. legal fees, land transfer taxes, etc.), meaning maximum tax relief of $750.

• The FTHBC is claimable for the taxation year in which the home is acquired

• An individual will be considered a first-time home buyer if neither the individual nor the individual’s spouse or common-law partner owned and lived in another home in the calendar year of the home purchase or in any of the four preceding calendar years.

For more information contact Service Canada at 1-800-622-6232 or visit www.fin.gc.ca

RRSP Home Buyers’ Plan

Program: The Home Buyers’ Plan (HBP) is a program under which you can, generally, withdraw up to $25,000 from your registered retirement savings plan (RRSPs) to buy or build a qualifying home. Withdrawals that meet all applicable HBP conditions do not have to be included in your income, and your RRSP issuer will not withhold tax on these amounts. However, before you can withdraw funds you must have entered into a written agreement to buy or build a qualifying home which you must occupy no later than one year after buying or building the home. If you buy the qualifying home together with your spouse or other individuals, each of you can withdraw up to $25,000. You cannot withdraw an amount from your RRSP under the HBP if you or your spouse owned the home more than 30 days before the date of your withdrawal.

Details:

• Up to $25,000 per person could be withdrawn tax-free from RRSPs to buy or

build a principal residence. Couples —including common-law — will be able to withdraw up to $50,000.

• You have to meet the first-time buyer’s condition.You are not considered a first-time home buyer if you or your spouse owned a home that you occupied as your principal place of residence in the past 5 years. To determine past 5 years, the 4 years preceding the year you make your withdrawal plus the period in the year you make your withdrawal ending 31 days before your withdrawal is the rule adopted.

• Home buyers withdrawing funds do not have to pay income tax on the amount withdrawn, as long as the funds are repaid into an RRSP in the future.

• The 15-year repayment period will begin in the second calendar year following the calendar year in which the withdrawal is made. In addition, a qualifying home must generally be acquired before October 1 of the calendar year following the year of withdrawal. For example, those making withdrawals under the plan in 2012 will have until October 1,

2013 to acquire a qualifying home and their first annual repayment will be due by the end of 2014 or the first two months of 2015

• A special rule denies a tax deduction for contributions to an RRSP that are withdrawn within 90 days of the RRSP deposit being made. Consequently, to get the normal tax break for a contribution and to use those funds under the plan, the money must be in your RRSP for at least 90 days before a withdrawal is made.

5 Per Cent Down Payment Program

Program:

With as little as five per cent down payment, from personal or other sources (see below for eligible other sources), all home buyers have access to mortgage insurance enabling them to enter the housing market, as long as they can meet the standards for a five year fixed-rate mortgage.

Details 

• Mortgage insurance for 95 per cent mortgages is available to both first time and repeat home buyers. Homebuyers have the option of using personal sources, such as savings or gifts, or other sources, such as lender incentives, borrowed funds/credit, or sweat equity (the amount of money spent to help construct the home) for the required five per cent down payment.

• Depending on eligibility, buyers using the Program may consume up to 39 per cent of their gross monthly household income for payments of principal interest, property taxes and heating, and total debt load cannot exceed 44 per cent of monthly household income.

• Buyers using the Program must be able to qualify for a five year fixed-rate mortgage even if they choose a mortgage with a lower interest rate and shorter term.

• Insurance premiums on loans for 95 per cent of the lending value of the house where the five percent down payment comes from personal sources will be 2.75 per cent of the mortgage loan. This premium can be added to the mortgage.

• Borrowers are required to demonstrate, at the time of application, their ability to cover closing costs equal to at least 1.5% of the purchase price.

• Where the minimum equity requirementis being met by way of a financial gift, the funds must be in possessionof the borrower 15 days before making an offer to purchase.

• For homeowners who used the Program to purchase their home, the maximum amount that can be withdrawn if re-financing their mortgage is 80 per cent of the value of their home.

• The Five Per Cent Down Payment Program is not available for non-owner occupied properties. These properties require a minimum down payment of 20 per cent.

• Government-backed insured mortgages are not available for homes with a purchase price of $1 million or more.

• Effective July 9, 2012, the maximum allowed amortization period for mortgages with less than 20 percent down payment is 25 years.

For more information call CMHC at 1-800-668-2642 or access through

www.cmhc.ca

Land Transfer Tax Rebates (Provincial and Toronto)

Programs

First-time buyers of new and re-sale homes are eligible to receive rebates of the provincial and Toronto land transfer taxes. The maximum provincial land transfer tax (LTT) rebate for

first-time buyers is $2,000 and the maximum Toronto LTT rebate for first time buyers is

$3,725.

Details:

Provincial Land Transfer Tax

• Provincial LTT is payable anywhere in Ontario (including Toronto)

• Maximum provincial LTT first-time buyer rebate is $2,000 (equivalent to the provincial LTT payable on a $227,500 property).

• For RESALE homes, the provincial rebate applies only to first-time buyers who entered into Agreements of Purchase and Sale AFTER December 13, 2007.

• First-time buyers of NEWLY CONSTRUCTED HOMES are eligible for the provincial rebate even if they entered into Agreements of Purchase and Sale prior to December 13,

2007.

• The provincial LTT for residential properties is calculated as follows (An easy-to-use calculator is available at www.NoHomeBuyingTax.com):

o 0.5% of the amount of the purchase price up to and including $55,000, plus

o 1% of the amount of the purchase price between $55,000 and $250,000, plus

o 1.5% of the amount of the purchase price between $250,000 and $400,000, plus

o 2% of the amount of the purchase price above $400,000

Toronto Land Transfer Tax

• Toronto LTT is payable only for properties in the City of Toronto.

• Maximum Toronto LTT first-time buyer rebate is $3,725 (equivalent to the Toronto

LTT payable on a $400,000 property).

• Toronto LTT rebates are in addition to any provincial LTT rebate that the buyer qualifies for.

• The Toronto LTT for residential properties is calculated as follows (An easy-to-use calculator is available at www.NoHomeBuyingTax.com):

o 0.5% of the amount of the purchase price up to and including $55,000, plus

o 1% of the amount of the purchase price between $55,000 and $400,000, plus

o 2% of the amount of the purchase price above $400,000

First-Time Buyer Eligibility:

To be eligible as a first-time buyer for the provincial LTT rebate and/or Toronto LTT rebate,

• The purchaser must be at least 18 years of age.

• The purchaser must occupy the home as his or her principal residence no later than nine months after the date of the conveyance or disposition.

• The purchaser cannot have previously owned a home, or had any ownership interest in a home, anywhere in the world, at any time.

• If the purchaser has a spouse, the spouse cannot have owned a home, or had any ownership interest in a home, anywhere in the world while he or she was the purchaser’s spouse. If this is the case, NO refund is available to either spouse. Note: If a purchaser’s spouse owned an interest in a home BEFORE becoming the purchaser’s spouse, but not while the purchaser’s spouse, the purchaser may be eligible for some rebate.