A Useful New Incentive for Future First Time Home Buyers
While housing prices have made it extremely difficult for first time home buyers, with interest rates rising and prices decreasing, now is a great time to consider buying that first home. We thought it was a perfect time to highlight a welcomed new “RRSP” like Tax-Free First Home Savings Account (“New Home Savings Account”) proposed in the 2022 Federal budget as well as provide a summary of the other incentives to consider (or pick and choose) on that first time home purchase.
Having spent a bit of time helping my daughter start her quest and, as a tax advisor wanting to understand the numerous programs available to help, I have put together a summary of the key programs to help you consider the options.
The key take-away – Every young working adult that has not yet purchased a home should take advantage of the New Home Savings Account and make a contribution starting in 2023.
Why? If enacted as proposed, the New Home Savings Account will work even better than an RRSP. The contributions will be tax-deductible and the funds can be withdrawn to buy a home tax-free. This means the contributor saves tax immediately and can use that tax savings plus the actual contribution to help fund the purchase.
While the New Home Savings Account has yet to be passed into law, as proposed, potential first time home-buyers will be able to contribute $8,000 a year up to $40,000 life time limit to for the purchase of their first home.
For example, a first-time home buyer earning about $60k a year paying tax at an effective rate of about 30% will receive a tax refund of about $2,400 on an $8,000 contribution. So at the end of 5 years, they would have an extra $12,000 available added to the $40,000 contribution that can be withdrawn tax free to purchase that new home.
To help taxpayers consider the options, we have provided a quick summary of a comparison of the New Home Savings Account and the other existing tax incentives below.
While not an exhaustive list, thought we should highlight a couple of other non-tax programs to consider:
The Federal First-Time Home Buyer Incentive – essentially this incentive is a shared equity mortgage that is fully repayable with the government providing funding like a second mortgage on the house which gets repaid upon sale or the end of 25 years based on the increase in value of their equity %. Lots of nuances so be sure to read the fine print on the guidelines.
The Ontario First-Time Home Buyer Incentive - A land transfer tax refund of up to $4,000 for qualifying first time home buyers.
Toronto Municipal Land Transfer Rebate – An additional land transfer tax credit of $4,475 when used with the Ontario tax credit.
