If you’re a first-time homebuyer, guess what? You automatically save money. And in a strong housing market like Toronto’s, that money can make the difference in helping us get you into your dream home. The province of Ontario has two main programs for first-time homebuyers: the Land Transfer Tax Refund and the Home Buyers’ Plan, which allows you to take up to $20,000 out of your RRSP (Registered Retirement Savings Plan) tax-free and use it towards your new home. Here are the details of each, and how you can maximise the benefit of each one.
Originally, this refund applied only to first-time buyers of new homes. However, in May 2008 the provision was expanded to include all first-time homebuyers, for agreements made on or after December 13, 1999 (i.e. you!). That means that if you buy a house in Toronto, and you’ve never bought a property anywhere before, you’ll be eligible for the refund no matter what kind of home you buy. First, a note about land transfer tax. This is the tax paid to the provincial government whenever a piece of property changes hands, and is based on the purchase price of the property. See the government’s official explanation of land transfer tax for the specific details, but for now, that’s what you need to know.
Under the terms of the refund, you’ll have to pay the entire land transfer tax up front, but once the sale goes through, the government will send you a cheque for $2,000 or the entire amount of the tax paid, whichever is the lesser. For example, if you paid a land transfer tax of $3,000, you’ll get $2,000 back, but if your tax was $1,500, you’ll get the entire $1,500 back. For more details on the whole plan, visit the Ontario Ministry of Finance website for the refund scheme. And if you still need assistance, or don’t know where to go next, please don’t hesitate tocontact us.
Home Buyers’ Plan
This plan is geared towards Canadian residents, or people who have been residents of Canada, who have RRSPs. The Ontario government’s website has a list of conditions, but we’ve put them in non-government-speak for you. In order to qualify, you’ll need to:
- Be a resident of Canada.
- Be buying a home for the first time, or not have owned a home within the past five years.
- Intend to live in the home as your primary residence – that is, it can’t be your cottage!
- Enter into a written agreement to buy a home from someone, whether it’s the builder, the realtor, or the seller.
- Actually close on, or build, your new home before October 1 of the year after you withdraw the money from your RRSP. So, for example: let’s say you withdraw $20,000 from your RRSP on January 1, 2009, to put a down payment on a house. That house has to be either bought or built by you before October 1, 2010.
- If you’ve used the HBP scheme before, you must have paid back all of the RRSP contributions you withdrew at that time.
- If you do withdraw money from your RRSP to put towards your home, you need to have it in there 90 days before the closing date. This is why it’s a good idea to plan ahead: even if you have 91 days until closing and you haven’t even established an RRSP, you can open one, make your maximum RRSP contribution for that year, take the tax write-off and then withdraw the money and put it towards your home. Cool, eh?
Now that we’ve got the technical stuff out of the way, here’s the good part: you, and your partner or co-purchaser, can each take up to $20,000 out of your RRSP tax-free and put it towards your home, for a total of up to $40,000! And you don’t have to take it out all at once, either: you can take it out bit by bit, until you reach $20,000 or January of the following year, whichever comes first. That said, it’s not exactly free money. In order to keep the tax-free benefit, you have to pay the money you took out of the RRSP back into the RRSP within 15 years, so it’s a good idea to budget one-fifteenth of your withdrawal every year to put back. Otherwise, you’ll be liable for tax on whatever amount is left outstanding at the end of those 15 years. But we know you’ll pay it back… right?
So, you might say. I’m having a bit of trouble with this program, because I’m young and fabulous, and I have no money in my RRSP! What do I do now? Do I have to miss out on $20,000? Not at all, we say! You can still contribute to your RRSP retroactively, if you’ve been working for a few years. Here’s how it works: each year, you have a limit as to how much money you can put into your RRSP. If you haven’t been contributing your maximum, though, you can add up how much you could have been contributing, and then put that amount into the RRSP.
For more information about the whole scheme, you can head over to the Ontario government’s official website. And if you’d like to talk to us about it, please contact us.
