Are you looking to buy your first home? If so, you may be feeling a little intimidated by Toronto’s challenging real estate market. It’s no secret that housing prices have soared over the last few years, making it more difficult to qualify for financing and save for a down payment.
Sometimes, it may feel like your dream of owning a home will never happen. However, there is some good news: The provincial and federal governments have passed legislation to make it easier for first-time buyers to get into the market.
Let’s take a look at what may be available to you.
First Home Savings Account
This federal program allows all Canadians over 18 to take advantage of tax-free savings for a down payment. You can save up to $8,000 each year, with a lifetime cap of $40,000 in contributions. Though the amount you can put in is limited, any investment profits can also go toward your purchase.
Unlike the Home Buyer’s Plan, you don’t need to repay any funds after your purchase. If there are funds leftover, you can keep them tax-sheltered by transferring them into an RRSP.
Do you want more tips on buying your first home? These other posts will help:
- Buying Your First Home In Toronto FAQs
- 10 Mistakes Buyers Make and How To Avoid Them
- What Is Fractional Ownership in Toronto?
Home Buyers Plan
With the Home Buyers Plan, first-time buyers can now pull as much as $60,000 out of their RRSP to put towards the cost of a new home without paying tax on the amount.
Only first-time buyers or those helping a relative with a disability can use this plan. (To qualify as a first-time buyer, you must not have lived in a home that you, a spouse or common-law partner owned within four years.)
The Home Buyer’s Plan can be combined with the First Home Savings Account to maximize your purchasing power. In addition, you can double up on the benefits when buying with a partner who is also a first-time buyer.
First Time Home Buyers Tax Credit
Just like it sounds, this is a tax credit extended to all first-time buyers. In 2022, the federal government raised the amount you can claim to $10,000. This works out to a reduction of $1,500 off your taxes for the year.
Claiming the credit is simple. There is no need to apply and no approval process, but you should keep all documentation in case of an audit.
You can split the tax credit with a spouse or common-law partner, but the total amount can’t exceed $10,000.
First Time Homebuyer Land Transfer Rebates
Land transfer taxes are one of the most prohibitive closing costs. Not being permitted to roll them into the mortgage makes them especially burdensome for first time buyers. In Toronto, we get hit twice as hard since there is both a municipal and provincial tax. Combined, these can add up to tens of thousands of dollars
The Ontario Land Transfer tax depends on the purchase price of the house. The tiered system works out like this:
- .5% on the first $55,000 ($275)
- 1.0% on amounts from $55,000 to $250,000 ($1,950)
- 1.5% on amounts exceeding $250,000 up to $400,000 ($2,250)
- 2.0% on the amount from $400,000 to $2,000,000 (up to $32,000)
- 2.5% on any amount exceeding $2,000,000.
Imagine buying a condo for $700,000 in Toronto. Following the above formula, you’d end up adding an extra $10,475 to your closing costs. That’s just for the provincial tax.
In Toronto, we also have the municipal portion. The formula is the same as above, unless you’re buying a very expensive home valued at over $3 million. Then the luxury tax kicks in, at rates from 3.5% to 7.5%.
Municipal and Provincial Rebates
Essentially, Torontonians pay twice as much. Fortunately, first time buyers can also access a rebate off of both the municipal and provincial portion.
This plan by the Ontario Provincial Government allows you to qualify for a rebate of up to $4,000 off of the land transfer tax on your first home purchase. If the price is less than $368,000, there is no transfer tax. However, if you’re buying in Toronto, that is unlikely to be the case.
In Toronto, the rebate is good for up to $3,725, almost doubling the amount you can save. Both plans are straightforward. However, the rebate amount can be reduced if buying as a couple where one partner has owned before.
GST/HST New Housing Rebate
This rebate allows you to recover some of the GST of the federal taxes on a newly built or substantially renovated home. Though not specific to first-time buyers, it can help make your purchase more affordable.
In Ontario, you can claim up to $24,000 off the GST. The property must be your primary residence, not an investment property or second home.
Buying your first home, while nerve-wracking, should be one of the most exciting moments of your life. With these programs in place, your dream of homeownership is one step closer to reality.
Ready to start searching for your first home in Toronto and want to know more about the city? Check out a few of our favourite neighbourhoods in the posts below:
- These Toronto Neighbourhoods are Perfect for a Fresh Start
- Up and Coming Neighbourhoods for Families
- Top Dog-Friendly Neighbourhoods in the West End
Working with an experienced agent can take much of the stress away from buying your first home. If you have questions or want to know more about the process, we are happy to help. Book a free meeting with us today.
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