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$10,000 First-Time Home Buyers Tax Credit in Canada for 2023

$10,000 First-Time Home Buyers Tax Credit in Canada for 2023

First-Time Home Buyers Tax Credit in Canada

First-time home buyers tax credit was designed to improve homeownership affordability. Here, we equip you with the requisite knowledge to take advantage of this credit.

Overview

The First-Time Home Buyers Tax Credit (HBTC) is a benefit provided by the Canadian government to make homeownership more affordable for Canadians.

Previously, the tax credit amount was $5,000. However, the new legislation introduced in December 2022 increased the tax credit amount to $10,000.

Although the resulting deduction from the tax credit may not be different, it can still help new homeowners cover some additional costs associated with home purchases.

If you buy a home, regardless of whether it’s your first home or not, you may qualify for the HBTC. Contrary to common understandings, this benefit is not only for first-time home buyers. This article will explain everything about First-Time Home Buyers Tax Credit in Canada that all home buyers should know.

So, stick around, and let us show you the ropes on how to take advantage of this government perk. Trust us, it will be worth it – we promise there won’t be any boring tax talk involved!

First-Time Home Buyers Tax Credit ?

The Canadian government allows Canadian residents to claim certain deductions when filing their tax returns if they qualify. First-time home buyer tax credit is an example of one of the deductions to encourage Canadian residents and citizens to become homeowners.

The introduction of the 2009 federal budget established the HBTC at $5,000. This credit amount remained unchanged until the release of the 2022 federal budget raising the credit to $10,000.

The name of this benefit, “First-Time Home Buyers Tax Credit,” often makes people mistake it as a benefit solely meant for individuals who have never owned a home.

However, according to the Canadian government, you do not necessarily have to be a complete newbie to the home-buying game. You may still qualify for this title even if you’ve owned a home before!

If you haven’t lived in a house that you or your spouse has owned in the last four years, you can still qualify as a first-time home buyer. It’s like hitting the reset button on your home-ownership status (without penalization for already owning a home)! So, even if you’ve dabbled in the real estate world before, you might still be eligible for the sweet perks that come with the First Time Home Buyers Tax Credit.

Eligibility Criteria and How to Qualify

As explained earlier, the HBTC is not just for someone with no home ownership history. With that said, you still need to fulfill the following criteria to qualify for First Time Home Buyers Tax Credit:

  • You must buy a qualified home that is located within the Canadian territory.
  • You must own the house after January 27, 2009, because that was when the HBTC bill became effective.
  • Your spouse must not have owned a residence for the last four years before you bought the new home.
  • The house you bought must be your primary residence. In addition, you must move into the newly bought house within a year.
  • The property you buy should be a single-family house, townhouse, condo, apartment, or housing co-op.

If you meet all the above-mentioned eligibility criteria, you automatically qualify for HBTC.

How is the HBTC calculated and who can claim it?

Since the upward revision of the HBTC amount from $5,000 to $10,000, there has been some confusion regarding the amount to claim for a new home purchase.

To clarify, it is important to note that the new HBTC amount is only applicable to homes that are bought after the approval of the 2022 federal budget. Homeowners who bought their houses before January 1, 2022, will remain eligible for the initial $5000 Tax Credit.

The First Time Home Buyers Tax Credit is simple to calculate because it is based on the lowest income tax bracket for any given year.

For example, in 2023, the lowest income tax rate is 15%. So, the formula for calculating the First Time Home Buyers Tax Credit would be $10,000 x 15%, which comes from a $1500 tax deduction. This implies that the maximum amount of this benefit that you can write off from your payable income tax is $1500.

For houses bought between 2009 and before January 1, 2022, the HBTC would be calculated as $5,000 x 15%, which amounts to a $750 credit.

First-Time Home Buyers Tax Credit in Canada for 2023

How to Claim the Credit

Now that you know how much tax credit you are eligible for if you are a first-time home buyer in Canada, you may wonder how to claim the credit.

You do not need to meet any qualification criteria or complete a formal application to claim HBTC. It is as simple as answering “yes” to the question of whether you have purchased a home for the first time in the current tax year on any tax filing questionnaire. In fact, it is believed that the ease of claiming HBTC is a significant reason for its popularity.

When filing your taxes, you must enter the correct amount you qualify for on Line 31270 in your income tax return. For example, if you bought your house before January 1, 2022, and after January 27, 2009, you must add $5,000 on Line 31270 of your tax return while purchases after January 1, 2022, would require you to enter $10,000 on Line 31270.

It is also important to note that you can either share HBTC with your spouse or common-law partner with whom you bought the house or allocate the entire sum to them, depending upon your preference.

When splitting the HTBC amount between spouses or common-law partners, individuals can divide the credit amount equally when filing taxes on Line 31279. However, the total shared amount must not exceed $5000 for houses bought before January 1, 2022, or $10000 for houses bought after January 1, 2022.

When can I claim the credit

You have the option of claiming the HBTC in the same year when you purchased the home or rolling over the credit to subsequent years for use. You can always file an adjustment to your income tax returns and claim the tax credit benefit during a later year.

If you didn’t owe any income tax during the year you bought the house, HBTC won’t be of any use to you since your taxes were already $0.

This implies that you cannot claim the HBTC such that it results in a negative income tax value (or a tax refund from the Government)

Is my property eligible for this credit?

One question homeowners have regarding HBTC is whether the property they have bought qualifies for the tax credit amount.

Since the HBTC only applies to residential properties, this credit is not applicable if you buy a commercial building. Even after purchasing a residential property, you still need to validate that it meets the following eligibility criteria to qualify for HBTC:

  • You list the home as your principal residence.
  • The home must have been bought in your name, your spouse’s, or your common-law partner’s name.
  • The home must be an existing or new home located within Canada. The HBTC is also applicable to under-construction homes.
  • The home you bought should fall within one of the following types of houses: Single-family home, Semi-detached home, Townhouse, Condominium, and Apartment in an apartment building, duplex, triplex, or fourplex.
  • You moved into the house within one year of making the purchase.
  • Buying a share in co-op housing units within Canada that gives you equity within the co-op is also eligible for HBTC. Shares that provide rights to only tenancy do not qualify.

Is the HBTC refundable?

It is important to note that the HBTC is nonrefundable, which means you can’t get any amount paid directly to you as a part of this benefit.

You won’t get the leftover amount if you owe less than $1500 in income taxes during the year you qualify for HBTC. So this credit will only reduce your tax returns to $0, and you can’t get any amount left after eliminating your taxes.

For example, if you owe $1100 in taxes and claim a $1500 HBTC deduction on your yearly tax return, your taxes will go down to $0. The remaining $400 credit won’t be refundable to you in any form.

Other related homebuyers' benefits

Apart from the HBTC, the Canadian government offers additional programs to support home buyers with their home purchases. Here is a list of some additional homebuyers benefits you can get in Canada:

The first-time home buyer incentive

You can reduce your mortgage payments with the first-time home buyer incentive. The primary benefit of this incentive is that the government helps you with some or all of the downpayment for the mortgage, which lowers your monthly mortgage. If a first-time home buyer qualifies for this incentive, they can make a downpayment with some help from the government.

Depending upon the type of home you are buying, you can get 5% or 10% of the home’s purchase price in a shared equity loan. The best part is that you don’t have to quickly return this amount to the Canadian government. You can repay the amount when you sell the home or after 25 years of getting the incentive.

Here is the percentage of the incentive for different homes:

  • In the case of a newly constructed home, the incentive amount could be 5% or 10% of the purchase price.
  • For the purchase of an existing home (resale), the incentive amount will be 5% of the purchase price.
  • For a mobile home (new or used), the incentive amount will be 5% of the purchase price.

When you repay the incentive amount, the repayment will be based on the home’s market value at the time of sale.

Land transfer tax rebate (LTT)

A land transfer tax rebate is an incentive provided to Canadians in selected cities and provinces.

The LTT rebate, also known as the First-Time Home Buyer Land Transfer Tax Rebate, is a government incentive that refunds some or all the amount you pay as land transfer tax when buying a property. To qualify for these rebates, you must meet the following criteria:

  • You must be a first-time homeowner.
  • You must be purchasing a home in any of these provinces: Ontario, British Columbia & Prince Edward Island.
  • You must have never taken the LTT before to qualify for this rebate because it can only be redeemed once per person.

Home Buyers' Plan

One of the most significant challenges of buying a house is coming up with a down payment. Luckily, the Canadian government offers a helping hand through the Home Buyers’ Plan. This plan allows first-time home buyers to withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP) to help cover their down payment.

If you’re eligible for the Home Buyers’ Plan and your spouse or partner is also a first-time home buyer, you can both withdraw up to $35,000, for a combined total of $70,000. This can be a huge help when it comes to securing your dream home.

Like the First Time Home Buyer incentive, the Home Buyers Plan increases the amount of your downpayment and reduces the size of mortgage payments. By increasing your down payment, you can lower the amount you need to borrow, which means lower monthly payments.

The amount withdrawn from your RRSP through the Home Buyers’ Plan must be repaid within 15 years of accessing the benefit. Repayments start in the second year after you take advantage of the plan, but don’t worry, they’re quite reasonable – just 1/15th of the withdrawn amount per year (that is 1/15th of $35,000 or less depending on how much you borrowed).

GST/HST new housing rebate

If you are looking to buy a newly built home, build a house or make substantial renovations to your existing home, I may have just the right government incentive for you.

Specifically, the Canadian Government has established a new housing rebate with a focus on significantly reducing the amount of Goods and Services Tax (GST) and Harmonized Sales Tax (HST) that you should pay on a newly purchased or renovated home. Even better is the fact that you can apply for this same rebate if you are building a new home.

To qualify for this rebate, the home must have a fair market price under $350,000 and you must not have claimed this rebate before.  If you are eligible, you could potentially receive up to 36% off the GST/HST you are required to pay, up to a maximum of $6,000.

It is important to note that this rebate applies to both federal and provincial GST/HST, so you can take advantage of it no matter where you live in Canada.

Canada Greener Home Grant

Canada Greener Homes Grant is an initiative established by the Canadian government to help homeowners make their homes more energy efficient.

While the objective of this grant is to reduce the environmental impact of homes, it also helps homeowners reduce their energy bills.

Unlike the other benefits mentioned above, the Canada Greener Home Grant is not just for new home buyers. You can also get this grant if you have an older home.

The grant amount is $5000, which covers some of the costs of making a home energy efficient. In addition to the actual grant, you may also get another $600 to cover EnerGuide evaluation costs.

The Tax-Free First time Home Buyers Savings Account

The process of saving up to acquire a new home can be daunting. Luckily, the Canadian government now offers a solution called the Tax-Free First-time Home Buyers Savings Account (FHSA) to make your savings easier.

With the FHSA savings account, you can make contributions of up to $8,000 per year. In addition, you have a $ 40,000-lifetime contribution limit. These limits allow you to save a significant amount to buy a home.

The profits you earn from your contribution to this account are tax-free. So, the money you put into this account and your investment earnings are not subject to taxes, leading to significant savings.

Frequently Asked Questions

You don’t have to buy a home for the first time to be a first-time home buyer. However, suppose one partner doesn’t qualify for the Home Buyers Tax Credit. In that case, the qualifying partner can still take advantage of this benefit.

Couples or common law partners are allowed to split the HBTC between themselves even if the home was bought under one of their names. However, the combined total is not allowed to exceed $10,000.

When couples or two people jointly purchase a home, the total of all amounts claimed is not allowed to exceed $10,000. The HBTC can only be claimed once per home.

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