Understanding the First Time Home Buyer’s Tax Credit

We all know that buying a new home, especially these days, is a massive expense. However, the Government of Canada has several programs, incentives, and tax credits to help make the process a little easier for Canadians buying their first home. One of these incentives is the First-Time Home Buyer’s Tax credit. Here is what you need to know about how the First Time Home Buyer’s Tax credit works. 

What is the First Time Home Buyer’s Tax Credit? 

First introduced in 2009, the First-Time Home Buyer’s Tax credit is one of the easiest tax credits Canadians can get when it comes to purchasing a new home. Individuals who qualify will get a $5,000 non-refundable tax credit which can result in a total tax deduction of $750. Granted, this isn’t exactly a huge amount of money, however, $750 is still $750 and can make life a little easier after the down payment, closing costs, mortgage payments, property taxes, and all the other expenses of being a new homeowner. 

Who is Eligible for the Tax Credit?

All Canadian taxpayers can access the First-Time Homebuyers tax credit if they qualify as a first-time home buyer by the government of Canada. Who is considered to be eligible as a first time home buyer? According to Canada’s Revenue Agency (the CRA) a first time homebuyer is as follows:

• You or your partner purchase a home that qualifies
• You didn’t live in another home owned by you or your partner in the same year, or any of the four years before.

So, what is a home that qualifies? Most homes in Canada will fit the requirements but here are a few key eligibility requirements to keep in mind.

• A qualifying home is a single-family, semi-detached, townhouse, mobile home, or condo
• It must be an existing or newly constructed home located in Canada 
• You must move into the home within one year of making the purchase and it must be your primary residence
• The home must be listed as your principal residence and be registered under your or your partner’s name. 

It is important to note that if you are an eligible person with a disability, there are some exceptions and you can apply for this tax credit without needing to qualify as a first-time home buyer. However, there are other criteria you then need to meet which include the following:

• You must claim the disability amount on your tax return the same year that you purchase the home
• The home must be suitable for your needs as a disabled person
• You must occupy the home within 1 year of purchasing and it must be your primary residence 

How Much is the First Time Home Buyer’s Tax Credit?

As mentioned earlier, the First-Time Home Buyer’s Tax Credit is $5,000. This means you can get up to $750 in rebates. Keep in mind that the First Time Home Buyer’s Tax Credit is a non-refundable tax credit. This means that this credit can only help cancel out any payable taxes. You will not be credited any leftovers. There is no mortgage interest deduction or cash back from the lender with the First-time Home Buyer’s Tax Credit.

How to Claim the First Time Home Buyer’s Tax Credit 

Claiming the first-time home buyer’s tax credit is really easy. There’s no need to apply or fill out any special paperwork to be approved. You do it when filing your federal income taxes.

When tax season rolls around and it comes time to do your annual taxes you will put the Home Buyer’s amount of $5,000 on line 31270 of your income tax return. If you are doing your taxes on your own with the help of a tax software program, you will be prompted to do this as the program will ask you questions about purchasing a home for the first time this year. If someone is doing your taxes for you, they will know where to add them. 

The First-Time Home Buyer’s Tax Credit can only be claimed once so both you and your partner can’t both claim it. However, you can choose how you claim the credit and split it as needed. Just remember the total maximum amount that you can claim is $5,000 regardless of your yearly earnings.  

If you are disabled you will have to fill out a Form T2201, Disability Tax Credit Certificate and have your doctor certify that you have a severe and prolonged impairment.

And that’s it! The CRA will take care of the rest. There’s no other tax liability to worry about.

Other Credits and Programs for First-Time Buyers 

The First-Time Home Buyer Tax Credit is one of the easiest credits to apply for, however, there are other programs in place to help first-time home buyers with homeownership as well. These include:

• Home Buyer’s Plan – This allows you to borrow up to $35,000 from your RRSP to purchase your first home. Note that the money does have to be paid back within a certain period of time. Learn more about the Home Buyer’s Plan.
• First-Time Home Buyer’s Incentive – The Government of Canada lends new home buyers either 5-10% of the home’s purchase price to be used as part of the down payment. This works as a sort of shared equity mortgage and is tax free but must be paid back with 25 years of when the house is sold. 
• GST/HST New Housing Rebate – You can recover some of the GST or federal part of the HST if you are buying an eligible newly constructed home.

It’s also worth noting that each province and territory has its own provincial programs on top of these eligible ones. So do some reading and research to see what else you may qualify for.