The First Time Homebuyer secret trick!
Budget season is not all bad! We all know how crazy housing costs have gotten lately, and the Government recently announced new tax measures coming into effect in 2022/2023 with a focus on affordable housing!
First Time Home Buyers
Thinking of buying your first home? The new budget introduces the Tax-Free First Home Savings Account (FHSA). It’s similar to the RRSP account, where contributions to an FHSA will reduce your taxable income. The difference is that the FHSA is meant to help you save for your first home. Any withdrawals made to purchase a first home will be non-taxable.
What are the rules?
First, you have to be a first-time homebuyer to be eligible. You are considered a first-time home buyer if, in a four-year period, you did not occupy a home that you owned or one that your current spouse/common-law partner owned. These eligible individuals can contribute up to $8,000 per year to a maximum of $40,000 in their lifetime.
The FHSA contributions will be available starting in 2023. This means you can contribute $8,000 in 2023 to save for a home and reduce your taxable income. You will be able to hit the maximum contribution amount of $40,000 by 2028.
This is not to be confused with the Home Buyer’s Plan (HBP), which allows you to withdraw funds from your RRSP to buy your first home through funds that must be paid back within a 15-year period. Under the FHSA, you don’t have to pay back into the account once withdrawn.
Unfortunately, individuals can only choose to make a withdrawal under one of the programs–either the FHSA or the HBP. If you have previously participated in the HBP, you may do so again or choose the FHSA if your repayable HBP balance on January 1st of the year of the withdrawal is zero and you meet all the other HBP eligibility conditions, including not having occupied a home that you owned or one that your current spouse/common-law partner owned for a four year period.
The FHSA is a strong no-tax option because not only does it reduce your taxable income when you contribute to it (tax-free in) like with an RRSP, but all eligible withdrawals are also tax-free (tax-free out) like with a TFSA. Compared to the HBP, which is tax-free in, you have to repay into your RRSP and eventually, when you take the money out of your RRSP for retirement, you will be taxed.
Lastly, the existing Home Buyers’ Tax Credit (HBTC) which allows first-time homebuyers to claim up to $5,000, which equates to $750 ($5,000 x 15%) in tax relief, is going to be doubled to $1,500 ($10,000 x 15%)! This will apply to homes purchased on or after January 1, 2022. Spouses or common-law partners may continue to split the credit as long as the combined credit does not exceed $1,500.
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Want to read the political platform that this new initiative is built on, click here!
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