With an average home price in the Greater Toronto Area of over $1 million, we are increasingly seeing parents and grandparents co-signing mortgages and helping first-time buyers with their down payments. Do first-time home buyers receiving help from family members—or pooling their resources—still qualify for the CRA first-time home buyer status? If so, what kind of help are they eligible to receive?
There are multiple incentives available for first-time home buyers, regardless of whether they’re the sole owner on title or whether the title to the property is held jointly with a family member or other co-purchaser. The credits below apply in either scenario, however with a jointly owned property, some amounts may be prorated.
For federal tax credits, a purchaser is considered a first-time home buyer if, in the four-year period prior to the home purchase, they did not occupy a home that they owned, or one that their current spouse or common-law partner owned.
First Time Home Buyers Plan (HBP)
The federal government allows first-time home buyers to withdrawal up to $35,000 tax-free from an RRSP to use as a down payment to buy or build a qualifying home in Canada. Contributions must remain in an RRSP for at least 90 days before they can be withdrawn under the HBP and the withdrawn amount must be repaid to the RRSP within a 15-year period (a minimum of 1/15th each year), otherwise the balance will be considered taxable income. The repayment period starts the second year after the year the funds were first withdrawn for the HBP. For example, if funds were withdrawn in 2020, the first year of repayment will be 2022.
One key condition to qualify for the HBP withdrawal is that the first-time buyer must live in the home as their principal residence within one year of the purchase.
Note: If two first-time home buyers are purchasing a home together that they will both occupy, they can each withdraw up to $35,000 from their individual RRSPs tax-free.
First-Time Home Buyers Amount
First-time home buyers can claim a $5,000 tax credit on the purchase of a qualifying home and receive a $750 non-refundable tax credit as a result. Once again, the first-time buyer must occupy the home as their principal place of residence no later than one year after it is acquired.
Note: The First-Time Home Buyers’ Tax Credit can be claimed only once per home. Co-purchasers who are both first-time home buyers can split the claim, but the combined total cannot be more than $5,000.
Ontario Land Transfer Tax Refund for First-Time Home Buyers
To claim this refund as a first-time home buyer, the purchaser can’t have owned a home (or any interest in a home) anywhere in the world, and their spouse can’t have owned a home (or any interest in a home) anywhere in the world while they were their spouse. The first-time buyer must also occupy the home as their principal residence within nine months of the date of title transfer. The maximum amount of the refund is $4,000 but the refund will be reduced if one (or more) of the purchasers is not a first‑time home buyer—with the refund proportionate to the interest acquired by the first-time buyer.
The Ontario Ministry of Finance provides the following example on their website:
Example – Parent and Child
Where a parent who is not a first‑time home buyer, and a child who is a first‑time home buyer, purchase a home with equal 50/50 interests, the child may claim a refund of 50% of the land transfer tax refund. The child’s claim cannot exceed 50% of the maximum allowable refund (i.e., 50% of $2,000 for conveyances or dispositions prior to January 1, 2017 or 50% of $4,000 for conveyances or dispositions on or after January 1, 2017).
In a situation where a parent is also on title to a child’s property, such as at the insistence of a bank, it will be necessary to pay land transfer tax at the time of registration and apply for a refund from the Ministry of Finance.
If the parent did not acquire a beneficial interest in the property as a result of the conveyance:
- the ministry will accept the fact that the parent was on title as a trustee for the child, and
- the child would qualify for the first‑time home buyers refund, provided that all other eligibility requirements are met, and evidence of the trust is submitted (e.g., a letter from the bank confirming that the parent is on title for mortgage purposes or a copy of a trust agreement).
Toronto Municipal Land Transfer Tax Rebate
The Toronto municipal land transfer tax rebate provides a rebate of up to $4,475. The qualifying rules are similar to the rules used to qualify for the Ontario Land Transfer Tax refund, with the first-time buyer required to occupy the home as their principal residence within nine months of the title transfer date. Similarly, in the case of a joint purchase where one party is not entitled to the rebate because they are not a first-time home buyer, this rebate would be limited to a maximum of 50%.
S+C Partners is committed to helping you
Buying a home for the first time can be the most important investment an individual or family can make. Our dedicated client service team is here to support you. Please call us at 905-821-9215 or email us at info@scpllp.com if you have any questions or require any assistance.