First Time Home Buyers' Tax Credit

Home Buyers' Tax Credit for people with disabilities

If you have a disability and are purchasing a home, you do not need to be a first-time home buyer to claim the Home Buyers' Tax Credit, where a person with a disability is defined as a person who can claim a disability amount on their tax return in the year the home is purchased. The Home Buyers' Tax Credit can be claimed if the home purchased is suitable for the disabled person's needs, and the disabled person occupies the home within one year from the date of purchase.

 

Land transfer tax rebate for first-time home buyers

Another tax credit available to first-time home buyers in Ontario, British Columbia and Prince Edward Island is the land transfer tax rebate. Each province has its own rules about who is eligible to claim the land transfer tax rebate. The amount of the rebate depends on which province you live in, the value of the home and whether one or both buyers has owned a home before.

First-time home buyers in the City of Toronto can also get a rebate of up to $3,725 on the municipal land transfer tax as long as they meet the necessary criteria. This rebate is applicable whether you're buying a Toronto townhouse, condo or house.

Other tax incentives for Canadian homeowners

Becoming a homeowner in Canada can be a major financial challenge. In light of that, the federal government provides a range of tax incentives in order to offset some of the costs associated with home ownership. Although some of these, like the First Time Home Buyers’ Tax Credit and the Land Transfer Tax Rebate, are exclusively for first-time home buyers, others can be used by any Canadian homeowner. They include: 

Multigenerational Home Renovation Tax Credit (MHRTC)

The MHRTC is the most recent tax credit to be offered to homeowners in Canada. As the name suggests, it is specifically designed to improve affordability for homes occupied by multiple generations of the same family (e.g. grandparents, parents and children). The MHRTC provides a refund for eligible expenses incurred while carrying out renovations to create self-contained secondary units, like “in-law suites”. You can claim as much as $50,000 for each completed qualifying renovation and be credited 15% of costs and up to a maximum of $7,500 per claim. 

Home Accessibility Tax Credit (HATC)

The HATC is a non-refundable tax credit designed for renovations that improve accessibility to the home for individuals with disabilities. In order to be eligible, the renovations must be carried out for the purpose of permitting a person to be mobile or functional in the home, to be able to access the home, or to reduce the risk of harm to an individual in the home. The HATC can be claimed by eligible individuals and has a yearly expense cap of $20,000. 

GST/HST new housing rebate

If you buy your home before it’s built, or if you substantially renovate an existing home, you could qualify for a rebate a portion of the sales tax. The amount of the GST/HST new housing rebate depends on the purchase price of the home, and can only be claimed if the net purchase price is $450,000 or less. While this rebate is often taken advantage of by first-time home buyers, this rebate is available to all Canadians who qualify regardless of whether they’ve owned a home before.

 

Tax obligations for homeowners

Principal tax exemption

Not having to pay capital gains tax when selling your principal residence is a major perk that you enjoy as a Canadian homeowner. However, if you want to qualify for this exemption, you need to report the sale of your home to the CRA and make sure that you designate it as your principal residence when you file your personal income taxes. You’ll need to do this in the same year that the home is sold. 

Underused housing tax (UHT)

The federal government introduced this tax in January 2022 in an effort to help tackle Canada’s housing shortage; an annual federal tax of 1% is now owed by homeowners of housing that is deemed vacant or underused. Although this tax “generally applies to foreign national owners” of real estate in Canada, some Canadian homeowners (e.g. those who own property in partnerships with others or a trustee of a trust) may also need to file a UHT return. That said, some exemptions exist, and homeowners can use the CRA’s self-assessment tool to see if they are eligible. Because the UHT is a new tax, affected individuals can file their 2022 returns without penalty or interest any time before April 30, 2024. 

Residential property flipping rule

This new rule was introduced as a part of the federal government’s 2022 budget. According to the rule, in order to be able to claim the principal residence exemption or the 50% capital gains inclusion, the taxpayer must have owned a property for a minimum of 365 consecutive days. If a property is sold any earlier than this timeframe, it’s considered to be “flipped” (i.e. a property bought and sold within a short period of time with the express intent of realizing a profit), and all proceeds of the sale will be fully taxed as business income. The residential property flipping rule also applies to rental properties and “assignment sales”, the latter referring to a sale wherein the original buyer allows another buyer to take ownership before the sale has officially concluded. Some exemptions do exist - be sure to check out the CRA’s website to learn more.  

Accommodation sharing

Accommodation sharing means to rent out a portion or the entirety of a residential property (including both primary and secondary homes), typically for a short span of time and often using a third party provider like AirBnB. All income received from accommodation sharing is required to be reported to the CRA, and is subject to income tax. If just basics like heat, laundry, utilities and parking are provided, the CRA will generally consider the income to be from a rental property. That said, if the rental agreement includes additional services like cleaning, security and meals, the CRA could instead define the income generated from the property as self-employed business income. You can find out more about how the income is classified from the federal government’s website. 

 

First-time home buyer education topics

• RRSP Home Buyers' Plan
• Land Transfer Tax Rebate
• First-time home buyer programs
• First-time home buyer grants
• First-time home buyer loans

 

References and Notes

1. First-Time Home Buyers' Tax Credit (HBTC), Canada Revenue Agency, 2022-05-19
2. 2009 First-Time Home Buyers' Tax Credit, Stephen H. Shub Professional Corporation, 2008-01-01