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First-time Home Buyer Considerations

Monday November 27, 2023

High housing prices, rising mortgage rates, and overall inflation have made it extremely challenging for many Canadians to purchase their first home, especially within more competitive markets like Toronto and Vancouver.

If you or someone in your family is considering the purchase of a first home, there are a number of programs and incentives in our current taxation system that you should be aware of. These include:

  • First Home Savings Account (FHSA)
  • RRSP Home Buyers’ Plan (HBP)
  • First-Time Home Buyers’ Tax Credit (HBTC)
  • CMHC’s First-Time Home Buyer Incentive (FHBI)

These four programs (which can be used individually or combined) share the following similar eligibility criteria:

  1. You must be a Canadian resident.
  2. You must be considered a first-time home buyer.
    This generally means that you or your spouse (or common-law partner) did not own and occupy a home as your principal residence in the current calendar year or the four preceding calendar years (not including the 30 days immediately before an HBP or FHSA withdrawal). If you owned an investment property (or properties) that you did not occupy, you are still considered a first-time home buyer.
  3. The purchase must be for a qualifying home.
  4. The purchase must be for yourself or for a related person with a disability.
  5. Occupancy as a principal residence must be no later than one year after the housing unit is acquired.

First Home Savings Account (FHSA)

The newest program for first-time home buyers is the FHSA. FHSAs combine the best of an RRSP and a Tax-Free Savings Account (TFSA), as you can claim an income tax deduction for contributions made in a particular taxation year and withdraw the funds tax-free to put towards the purchase of your first home (as long as you have a written agreement to buy or build a qualifying home with an acquisition or construction completion date before October 1 of the year following the withdrawal date.)

Beginning April 1, 2023, prospective first-time home buyers between the ages of 18 and 71 can contribute up to $8,000 per calendar year (including 2023) to an FHSA, to a lifetime maximum of $40,000. A couple can double this to $80,000 (using separate FHSAs) assuming home ownership is new to both.

Note: If you contribute more than your permitted FHSA participation room, you generally will be required to pay a tax equal to 1% of the highest excess FHSA amount in the month, for each month that the excess remains in the account.

Similar to RRSPs, FHSA contributions do not have to be deducted from income in the year they are made and can be carried forward to future years — which may be a preferred strategy if you expect to pay tax at higher marginal income tax rates in the future.

You can also carry forward your unused FHSA participation room at the end of the year, up to a maximum of $8,000, to use in the following year. Note that carry-forward amounts do not start accumulating until the year you open an FHSA.

Here is an example:

Limit Contribution Carry Forward Remaining Room
2024 8,000 4,000 4,000 36,000
2025 12,000 3,000 8,000 33,000
2026 16,000 5,000 8,000 28,000
2027 16,000 5,000 8,000 23,000
2028 16,000 10,000 6,000 13,000
2029 13,000 4,000 8,000 9,000
2030 9,000 7,000 2,000 2,000
2031 2,000 2,000


An FHSA will be closed on December 31 in the year the earliest of:

  • the 15th anniversary of opening your first FHSA,
  • the year you turn 71 years of age, or
  • the year following your first qualifying withdrawal.

On closure, any funds not used to buy your first home must be transferred to an RRSP/RRIF, otherwise the funds will be considered a taxable withdrawal and their full FMV included in your income.

Note: FHSA funds transferred to an RRSP or RRIF will be taxed on withdrawal.

Even if you have no plans to ever purchase a principal residence, it may still be beneficial to contribute to an FHSA, as the full balance can be transferred to your RRSP without affecting your RRSP contribution room. Essentially you create $40,000 (plus any increase in FMV) in additional RRSP contribution room. For example, if you contribute $8,000 for the first 5 years of FHSA availability (from 2023 to 2027), and earn 3% annually, the account will have an FMV of approximately $60,000 on the 15th anniversary–essentially creating $60,000 of RRSP contribution room.

You also have the option to transfer from your RRSP to your FHSA, as long as you do not exceed the annual or lifetime FHSA participation limits. You are not able to claim a FHSA income deduction for a transfer from an RRSP and transfers from an RRSP to FHSA will also not restore your unused RRSP deduction room. Therefore, this strategy is generally not advised, since you would lose that global RRSP/FHSA contribution room rather than multiply it (as discussed above). To maximize RRSP room, making contributions to an FHSA is the preferred approach.

Note: All transfers between FHSA and RRSP accounts should be done using prescribed forms by your financial institution. Do not transfer between these accounts on your own as this will likely have unintended tax consequences.

For younger people, the best choice between an FHSA and RRSP will depend on different factors, such as timing and the potential amount that will be saved. Since the FHSA offers a tax deduction on contribution and no income inclusion on withdrawal and can be transferred to your RRSP without affecting your RRSP contribution room, it generally should be more beneficial to contribute to a FHSA first, before a RRSP.

Note that you can gift your adult child or grandchild money to contribute to their FHSA without negative tax consequences for either you or the beneficiary. They will be able to claim a tax deduction in the same year or a future year, and the income earned in the account will not be attributed to you.

There are approximately 5 weeks remaining in 2023 to get your 2023 contributions in.

RRSP Home Buyers’ Plan (HBP)

The HBP allows a first-time home buyer to withdrawn up to $35,000 from their RRSP to buy or build a qualifying home for themselves or a related person with a disability. Unlike a regular RRSP withdrawal, there is no income inclusion in the withdrawal year. Instead, the HBP allows you to pay back the withdrawn funds within a 15-year period, starting in the second year after the year of withdrawal. For example, if you made your first withdrawal in 2024, your first year of repayment will be 2026. Any amounts not repaid within the 15-year period will be included in income and the RRSP contribution room will be lost.

Note: Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year.

Additional details, including a sample repayment calculation, can be found on the Government of Canada website.

First-Time Home Buyers’ Tax Credit (HBTC)

First-time home buyers of a qualifying home can claim a $10,000 non-refundable income tax credit, resulting in tax savings of up to $1,500. This credit may either be claimed by an individual, or split between spouses or common law partners in any proportion.

First-Time Home Buyer Incentive (FHBI)

The FHBI is a shared equity mortgage with the Government of Canada provided through the Canada Mortgage and Housing Corporation (CMHC). It offers first-time home buyers a 5% down payment (as a second mortgage) for a purchase of a resale home or a new/resale mobile/manufactured home, and up to 10% for the purchase of a newly constructed home.

Repayment must be made within 25 years, or on the sale of the property, whichever is earlier.

The repayment is equal to:

  • In the case of appreciation, the Incentive amount plus a maximum gain to the Government of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment; or
  • in the case of a depreciation, the Incentive amount minus a maximum loss to the Government of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment.

In addition to the shared eligibility criteria listed at the beginning of this Insight, to qualify for the FHBI:

  • Your annual household income cannot exceed $150,000 if you’re purchasing in Toronto, Vancouver or Victoria, or $120,000 if purchasing anywhere else in Canada;
  • Your total borrowings (all combined mortgages) on the property can’t exceed 4.5 times your annual household income if you’re purchasing in Toronto, Vancouver or Victoria, or 4 times if you are purchasing anywhere else in Canada;
  • You must take CMHC insurance – meaning, your first mortgage must be greater than 80% of the FMV of the home.

Note: Many Canadians will be unable to take advantage of the FHBI based on these criteria. Finding a home in Toronto, Vancouver or Victoria for $710,000 ($150,000 x 4.5) or in many other places in Canada for $505,000 ($120,000 x 4) is very difficult. In addition to paying CMHC premiums and paying out part of the appreciation on your property, other increased costs may be associated with the FHBI, including additional legal fees, appraisal fees, and increased home insurance premiums.

Other Considerations for First-time home buyers

Residential Property Flipping Rule

Effective January 1, 2023, residential properties that are bought and sold within one year (subject to exceptions) will be denied capital gains treatment and the Principal Residence Exemption. Exceptions include life events such as the death of the individual or related party, an addition to the household, separation or divorce, a threat to personal safety, serious illness or disability, work relocation or termination, insolvency, natural disaster, or expropriation of the home.

Land Transfer Tax Rebates

First-time home buyers in Ontario may be eligible for a rebate of all or part of the Ontario Land Transfer Tax (“LTT”) up to a maximum of $4,000. Some municipalities that charge LTT also offer rebates for first-time home buyers. For example, Toronto offers a maximum rebate of $4,475.

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