Explaining the FTHB Tax Credit and the Home Buyers Plan – Ask Bruce Coleman, Vancouver Mortgage Broker
Explaining the FTHB Tax Credit and the Home Buyers Plan
Saving the down payment for your first home is challenging enough. However, what many first time home buyers often forget about is the extra cash they need to have on hand for their closing costs.
When you buy a home there are additional fees you need to have on hand such as legal cost, taxes that have to be paid out for transferring the land, and other applicable disbursements. Closing costs can range from between 0.5% to as much as 2% of the purchase price of the home you are buying.
This can take out a big chunk of the savings you have on hand.
How the FTHB Tax Credit Helps First Time Home Buyers
The First Time Home Buyers Tax Credit was implemented by the Canadian Government in 2009. The purpose of the tax credit was to help first time home buyers with these added costs.
A qualified applicant can claim up to $5,000 non-refundable tax credit on any home purchased after January 27, 2009 and can receive as much as $750.00 in tax relief.
Qualifying for the HBTC
You can qualify for the tax credit along with your spouse or a common-law partner so long as neither you, your spouse or common-law partner have not resided in another home owned by any of these applicable parties in either the year the new home was purchased or in any of the 4 years proceeding.
A person with a disability, or if you are buying a home for a person with a disability, may be exempted from having to be a “first time home buyer” to qualify for the tax credit.
The house you purchase must also be considered as a “qualifying home” as well. Most types of home that can be bought qualify for this tax credit. This includes the following:
- Single family homes
- Semi-detached homes
- Mobile Homes
- Condominium Units
- Duplex apartments
- Apartment buildings
- A share in a co-operative housing corporation
Another requirement is that you must occupy the home being purchased as a principal residence for either yourself or for the person who has a disability no later than one year when the home was purchased.
Who Can Claim the Tax Credit?
You, your spouse or common law partner can claim the tax credit. You can also share the credit jointly so long as the combined claim is not in excess of $750.00 in total.
Where Can you Claim the Tax Credit?
You can claim the tax credit on the specified portion of your personal income tax form that you complete for Revenue Canada for the year in which you purchased your first home. You will not have to include any specific documents, but should have the information available as it could be requested by the CRA (Canada Revenue Agency).
Home Buyers’ Plan (HBP)
Additionally, the Federal Government allows all Canadians to use their RRSP monies towards a down payment when buying or building a home. This money can withdrawn tax free from your RRSP so long as it is used towards the down payment of a new home.
You currently withdraw as much as $25,000 tax free from your RRSP providing the funds withdrawn have been in an RRSP for at least 90 days before being withdrawn.
Additionally, any RRSP monies which are being used towards your down payment must be re-paid in 15 years until the HBP money balance is fully reimbursed. If you do not repay the money that is due in any particular calendar year, then that amount will have to be declared as income for that year on your tax form.