The prospect of buying a new home can be both exciting and intimidating, especially for first-time buyers. It’s a big financial move, often the biggest that many will make over the course of their lifetime!
That’s why it’s important to know which programs, credits, and deductions are available to you, so that you can capitalize on every break and money-saving opportunity you can over the course of your home ownership journey.
We’ve compiled the ‘must knows’ down below so that you can be fully informed before jumping headlong into your home purchase.
Utilize FHSA and HBP Benefits
In April of 2023, the government introduced the Tax-Free First Home Savings Account (FHSA) which allows Canadians over the age of 18 to save up $40,000 for their new home and withdraw it tax-free for the purpose of putting it towards a home purchase.
You can contribute up to $8,000 each year to this special account; however, you must use these funds within 15 years of first opening it or before you turn 71. If you don’t, your account will be closed.
An FHSA allows you to withdrawal this money without repaying it, making it different than its predecessor – the Home Buyers Plan (HBP).
With the HBP, you’re able to withdraw up to $35,000 from your pre-existing RRSP to put towards either buying or building your first new home.
However, you will be expected to repay the amount back into your account within a 15-year period if you want to avoid steep penalties.
Take Advantage of the First-Time Home Buyers’ Tax Credit
If you’re setting up to purchase your first home, you can claim up to a $10,000 First-Time Home Buyers’ Credit for qualifying residences. This includes single-family houses, semi-detached houses, townhouses, mobile homes, and condos.
To qualify, this must be the first home that you have purchased. You are also required to have not lived in a home that you or your spouse owned within the last 4 years.
However, there is an exception to this rule and that is if you or your spouse have a disability. In this case, you can claim credit even if it’s not your first home as long as it’s (1) shown to be better suited for the person with the disability, and (2) is the primary residence of the person with the disability.
Making Your Home More Accessible? Claim That!
If you’re planning to renovate to make your new home (or current home) more accessible for residents with disabilities or mobility issues, some of these expenses can be claimed on your taxes.
The Home Accessibility Tax Credit is available to help offset the costs of making your home more functional for a qualifying resident. With it, you can get a 15% return on up to $20,000 worth of renovations.
This means that if you spent $20,000 to make your home more accessible, your credit would amount to approximately $3,000.
While credits are non-refundable, meaning that it won’t equate to cash back in your pocket, you can use it towards offsetting any other taxes that are owed or may become owed in the future – such as annual property taxes!
Be Mindful of Your Annual Property Taxes
Speaking of property taxes, make sure to have an open and honest conversation with your realtor about them before purchasing your home.
A realtor will be able to tell you the amount the previous owners paid in annual property taxes or, if it’s a new build, what property taxes are like in similar properties in the same area.
Knowing what to expect will help you be able to set aside funds each paycheque, ensuring that you have the payment you need once tax time comes around.
Flipping Your House? There Are New Taxes for That
Purchasing a property, renovating it, and then selling it for a profit has been commonplace-practice amongst house-flipping aficionados for years.
However, due to the number of people who were wrongly claiming a flip house as a primary home while living somewhere else and profiting from it, the government has cracked down with some new legislation.
This comes in the form of a recently instated Anti-Flipping Tax.
Essentially, if you sell a home that you’ve been in possession of for less than a 12-month period, you’ll be required to pay taxes on it as if it were a course of business income.
This is something to be mindful of if you were planning to flip your new purchase quickly, as doing so now has significant tax repercussions.
Have Questions? No Problem! Connect With Us!
There are dozens of niche ways to reduce your tax burden and capitalize on your newly acquired property. At Isaac Achal Professional Corporation (IAPC), our team of Chartered Professional Accountants will assist you in getting the most from your new or upcoming purchase.
Contact us today for more information, to schedule an appointment, or to utilize our complimentary second-look service.
