What is the First-Time Home Buyers’ Tax Credit and how does it work?
This piece was originally published on March 15, 2021, and updated on January 26, 2024.
UPDATE: As of March 31, 2024, the First-Time Home Buyer Incentive will be discontinued, with an application deadline of March 21 for those who still wish to use the program. Read our post “Federal government cancels the First Time Home Buyer Incentive” to find out more.
Purchasing your first home can feel intimidating, even at the best of times. Of course, home buyers today are facing some of the toughest affordability conditions seen in a long time. Both fixed and variable mortgage rates have steadily increased over the course of 2022 and into 2023, along with the Bank of Canada’s historic 10-part hiking cycle.
While the average Canadian home price has fallen from its pandemic peak, homeownership costs continue to be prohibitive; new data from Ratehub.ca reveals that over the course of 2023, buying conditions deteriorated in the 10 largest Canadian housing markets. The report found that buyers needed between $5,610 and $24,600 more in income to qualify for a mortgage on the average priced home, depending on the city, due to stubbornly high mortgage rates and an average mortgage stress test in the upper 8% range.
Of course, qualifying for a mortgage and paying for a home is just the first part. There’s still the extra fees you’ll need to pay when closing your purchase – and they really do add up! Legal expenses, inspection fees, and land transfer taxes; the list of closing costs goes on and on. That can make purchasing a home for the first time feel less achievable.
If you’re starting to pinch your pennies to become a first-time homebuyer, there are a few government incentives that might make life easier, such as land transfer tax rebates, and the Home Buyer’s Plan. However, the First-Time Home Buyers’ Tax Credit, sometimes called the HBTC, is one of the most effective ways to return cash to your pocket.
Here’s what you need to know about the First-Time Home Buyers' Tax Credit.
What is the First-Time Home Buyers’ Tax Credit?
The First-Time Home Buyers’ Tax Credit is a $10,000 non-refundable tax credit. Up until 2021, the tax credit amount was $5,000, but in 2022 legislation was passed to increase this to $10,000 for that year and all subsequent tax years. If you’re buying a home for the first time, claiming the First-Time Home Buyers’ Tax Credit can land you a total tax rebate of $1,500 (it was $750 prior to the 2022 Federal Budget being approved).
While $1,500 isn’t a life-changing amount of money, it can make buying your first home a little bit easier. The First-Time Home Buyers’ Tax Credit was first introduced in 2009, and is available to all qualifying Canadian taxpayers.
The difference between the HBTC and the First-Time Home Buyer Incentive
Unlike the First-Time Home Buyer Incentive, which requires the home buyer to share the equity in their home with the federal government, receiving cash through the HBTC comes with no strings attached.
Using the FTHBI, home buyers can receive 5% for the first purchase of a resale home, or 5% or 10% of a newly-constructed home, allowing them to pay a smaller down payment. In exchange, the government shares in the upside and downside of the property’s equity, up to a maximum of 8% per annum. The home buyer must repay the FTHBI after 25 years, or when the property is sold, whichever comes first. The home buyer can also repay the FTHBI amount in full at any time, without incurring a pre-payment penalty.
Meanwhile, the HBTC is a one-time-use tax credit for buyers who are defined as first-time home purchasers (more on that below).
The difference between the HBTC and the First Home Savings Account
The First Home Savings Account, meanwhile, is the newest savings vehicle introduced by the Federal Government to help first-time buyers save up a down payment. First announced in the 2022 federal budget, the account officially became available at financial institutions on April 1, 2023.
All of Canada’s big banks now offer this account, which allows savers to contribute up to $8,000 annually (up to a lifetime max of $40,000) tax-free. The funds housed within the FHSA can also grow tax-free, and unlike the RRSP Home Buyers’ Plan, the funds never need to be paid back into the account after they’re withdrawn for the purpose of purchasing a home. Savers will also receive a tax return on the funds contributed to the account.
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Who can claim the First-Time Home Buyers’ Tax Credit?
How do you know if you are a first-time home buyer? The Canada Revenue Agency (CRA) sets out a simple list of requirements that determine who count as first-time home buyers. Here’s how to know if you qualify:
- You or your partner bought 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
The federal definition of a first-time home buyer is a little different to the definition used by some provinces, which can make it easier to be eligible for the First-Time Home Buyers’ Tax Credit.
Does my home qualify?
The vast majority of homes in Canada qualify for the First-Time Home Buyers’ Tax Credit, but there are a few requirements to keep in mind. Your home qualifies if:
- It is a single-family, semi-detached, townhouse, mobile home or condo;
- It is an existing or new construction home located in Canada;
- You’ve moved into the home within one year of making the purchase; and
- The home is listed as your principal residence and is registered under your name or your partner’s name.
Note that for cooperative housing units, shares that provide the right to tenancy won’t qualify. Only shares that provide possession of the unit will be eligible.
Claiming the credit for people with disabilities
If you’re a person with a disability and you claim the Disability Tax Credit on your tax return, you can also claim the First-Time Home Buyers’ Tax Credit. This applies even if you’ve already owned a home in the past. There are a few criteria that you’ll need to meet:
- You must claim the disability amount on your tax return in the same tax year that you purchase the home;
- The home must be suitable for the disabled person’s needs (ie your needs); and
- You must occupy the home within one year of purchasing it.
Claiming the tax credit requires you to fill out Form T2201, Disability Tax Credit Certificate, and have a medical practitioner certify that you have a severe and prolonged impairment.
How do I claim the First-Time Home Buyers' Tax Credit?
Claiming the First-Time Home Buyers' Tax Credit is simple. If you’re using online software like Wealthsimple Tax or Turbotax, you’ll answer ‘yes’ to their questions about whether you purchased a home for the first time in this tax year. If you’re preparing your taxes yourself, you’ll fill in the CRA homebuyer’s amount on Line 31270 of your Schedule 1 (previously line 369 on your income tax return) with the amount $10,000 for 2022 and subsequent years (or $5,000 up until 2021). That’s it. The CRA will do the rest.
What if I’m buying a home with someone else (spouse, common-law partner or friend)?
The First-Time Home Buyers’ Tax Credit can only be claimed once per home. That means if you’re buying your home with a partner, co-purchaser, or buying a home with a joint mortgage, you can only claim the tax credit once.
You can choose how you claim the credit, however. You could claim the full $10,000 yourself, your partner could claim the full amount, or you could split it between yourselves. Depending on how much tax each of you pays, there may be an advantage if one of you claim instead of the other. The choice is yours, as long as the total doesn’t exceed $10,000.
Does the HBTC affect my eligibility for the Home Buyers’ Plan or FHSA?
The First-Time Home Buyers’ Tax Credit should not be confused with the Home Buyer’s Plan or FHSA. These are three different government programs. The First-Time Home Buyers’ Tax Credit is the non-refundable tax credit we’ve discussed above. The Home Buyer’s Plan, on the other hand, lets you withdraw up to $35,000 from your RRSP to use as a down payment on your first home. Finally, the FHSA is a tax-free savings account. Since they are three separate programs, using one doesn’t affect your ability to use the other.
What other tax credits am I eligible for?
If you’ve received the First-Time Home Buyers’ Tax Credit, you can still apply for a variety of other first-time home buyers’ programs, and grants, including:
- Land transfer tax rebates: Some cities and municipalities offer a rebate to help first-time homebuyers offset the cost of their land transfer tax.
- GST/HST New Housing Rebate: If you paid GST or HST when purchasing your home, you may be eligible for a rebate from your federal or provincial government.
- Home Buyers’ Plan: The federal government allows you to borrow up to $35,000 from your RRSP to purchase your first home.
- FHSA: Savers contribute up to $8,000 annually, which can grow within the account tax-free, and receive a return. Funds never need to be paid back to the account, and can be transferred to an RRSP should the saver decide to not purchase a home.
Quebec Home Buyers’ Tax Credit
In Quebec, there is a provincial Home Buyers' Tax Credit you may be eligible for. It’s also a $750 tax credit, with similar eligibility criteria. It does require you to have bought and live in a home in Quebec, of course.
The bottom line
The First Time Home Buyers’ Tax Credit can help you save hundreds on the up-front cost of purchasing a home, and you should use it! However, a more significant way to save money when buying a home is to shop around for the best mortgage rate.
Comparing your mortgage rate can save you tens of thousands of dollars over the life of your mortgage. It’s the single best thing to make your monthly mortgage payment more affordable – the perfect way to start your very first homeownership journey.