First Time Home Buyer Tax Credit – What Is It?
The First Time Home Buyer Tax Credit is a non-refundable tax credit available to Canadians who purchase a home after January 27, 2009. The credit acts as an incentive for any first-time home buyer purchasing with a partner or on their own.
Eligible applicants receive a portion of $5,000 determined by the lowest personal percentage of the applicable year. This form of government support, for first time home buyers, helps the economy and increases the chances of young couples and individuals buying rather than renting their homes.
The HBTC is applied for during the filing for Canadian income tax for the year of purchase. For example, if you buy a house in 2019, your 2019 income tax forms would include information in line 369 of Schedule 1, which may otherwise be left blank.
Qualifying as First Time Home Buyer
To qualify for the new home buyer tax credit, applicants must purchase a qualifying home, and must not have lived in a house owned by the buyer during that year, or the 4 years before ownership commences. Individuals who claim a disability amount for the year the house is being purchased are also eligible, whether this is the first house they purchase or not.
The credit can be claimed individually by a home buyer, or split between two home owners, so long as the credit doesn’t exceed $750. This is true of those purchasing with a spouse, common law partner, or friend.
Properties That Qualify for the Home Buyers Tax Credit
1st time home buyer incentives like the HBTC are based on different criteria, such as the qualifications of the house being purchased. To receive the first-time home buyer tax refund, the house must be purchased after the date of January 27, 2009. The owner must intend to live in the house as a primary place of residence within a year of the purchase. This includes buyers who purchase for a family member with a disability. For those buying for a loved one with a disability, the new home must enable more accessible living than previous dwellings.
Can you claim First Time Home Buyers Credit on your property? The following homes are qualified under the First Time Home Buyer Tax Refund:
Mobile homes: A trailer home parked and used as a permanent place of lodging. These units are called mobile homes because they are crafted in one location and mobilized during transit to their property site. These differ from classic travel home trailers, which are generally used as temporary vacation accommodations.
Duplexes: A duplex is a house consisting of two units contained within one building. Most commonly the doors to both units are on the front face of the building, however, some duplexes have a side or back entrance for one of the units.
Townhouses: Also known as row housing, townhouses are a block of several houses which are connected. The term townhouse was conceived in the 18th century when wealthy landowners kept a country house and a townhouse for travel between home and the city during the social seasons.
Single family homes: A single family home is the classic detached unit which involves a single house with lodging enough for one family. A single-family home may also include an in-law suite apartment in the basement.
Condominiums: An apartment style unit in a multi-unit building, which is owned and sellable by the tenant. These units are governed by a joint condo-corporation which maintains the external property and manages internal issues for a monthly fee.
Apartments: Ownership of, but not rental of, a unit in a multi-unit property. As in duplexes, triplexes, fourplexes, and buildings consisting of more units designed for use as an apartment building.
Co-op Housing: Co-operative housing is a form of housing tenure involving the joint ownership of a residential building or buildings. To qualify for the HBTC, you must be entitled to equity interest in a unit in Canada, not just have the right to be a tenant within the unit.
How Does the First Time Home Buyer Canada Tax Credit Work?
The First Time Home Buyer Canada Tax Credit portion of the mortgage process is quick once you begin. Before filing, applicants must register the house and property per the system in your province or township. Once registered in either your name or the name of your spouse, the home is listed in the system as, “acquired”. This gives you the right to file ownership on your next tax return in line 369 of Schedule 1.
New home owners enter $5,000 of their deposit within Schedule 1 of their tax return and must do so within one year of purchasing the house. The Canadian Revenue Agency then uses the applicable year’s lowest personal percentage of income to determine your credit up to, but not exceeding, $750. Supporting documents are not required at the time of filing but must be retained should the CRA perform an audit.
If you file for the HBTC you are still eligible to participate in the Home Buyers’ Plan, a program which gives Canadians the right to withdraw money from an RRSP as part of a payment toward a house. The HBTC and Home Buyers’ Plan have no connection but share some qualifying factors.
How is the New Home Buyer Tax Credit Calculated?
The New Home Buyer Tax Credit provides a portion of a $5,000 reward to eligible candidates based on the lowest personal income tax rate for the year. It is calculated by multiplying that tax rate by $5,000. For example, in 2009, the lowest personal rate was 15%, making the potential credit a sum of $750 to eligible house buyers that year, (0.15 x 5000 = 750).
For more information on the New Home Buyer Tax Credit, contact your Vancouver Mortgage Broker.