Opinion
If $402,915 sounds like a healthy sum of money, it has become somewhat average these days. That is the amount required to purchase the average-priced home in Winnipeg, as of March, at least. It is likely edging higher as you read this.
Despite being ‘average,’ affording a home is an above-average challenge for many young Canadians, leaving many would-be and newly minted homeowners scrounging for extra money to realize the Canadian dream of ownership.
Filing their tax return this spring could offer them just that.
“It’s a question we get a lot of clients when they buy their first home,” says Yannick Lemay, tax specialist with H&R Block in Quebec City. “They wonder whether there are any tax benefits related to their home to reduce.”
Indeed, there are a few, and here’s a look at them.
Embrace FHSA
The First Home Savings Account (FHSA) is now the savings vehicle of choice for first-time buyers, says Rosa Bovino, mortgage broker with Knockout Mortgages — Invis in Winnipeg.
“The First Home Savings Account is a way better program than what the government had before, which was the First Home Buyer Incentive.”
Remember that program? Few probably do.
The federal government incentive initiative involved the government paying for half the down payment, and it was a clunky, confusing program with not a lot of take-up in the few years it was in place, she adds.
By comparison, the FHSA allows first-time buyers to save $8,000 annually to a lifetime maximum of $40,000 per person that can grow up to 15 years tax-free and can be withdrawn tax-free when used to purchase a first home.
The tax piece is the contributions result in a deduction against taxable income. So if you contributed the maximum of $8,000 to your FHSA last year, you’re reducing your earned taxable income by that amount, resulting in a tax refund worth a few thousand dollars.
“Even if you never intend to buy and see yourself as a forever renter, this is an opportunity to get an additional $40,000 of RRSP contribution room because you can take the money from an FHSA and move it tax-free to the RRSP,” says Nicole Ewing, principal with wealth planning office at TD in Toronto and a tax lawyer.
And you don’t need the extra RRSP contribution room to do it, she adds.
Ideally, though, those FHSA contributions will one-day be used for a home purchase instead of retirement.
Home Buyers’ Plan
This program allowing first-time buyers to borrow from their RRSP to purchase a home takes a back seat to the FHSA these days. The FHSA is simply a better program for saving for a first home, Bovino says.
“With the First Home Savings Account, you still get the tax deduction like an RRSP, the only difference is when you withdraw it to buy a home, you don’t have to pay it back.”
The Home Buyers’ Plan obviously provides a tax deduction for contributions to your RRSP, but when you take out the maximum of $60,000 — up from the previous maximum of $35,000 — to buy a first home, the withdrawal is only tax-free if you pay back the amount to your RRSP over a 15-year period.
Typically, individuals have two years to start repayment after purchasing a home. Right now, however, anyone who used the plan to buy a home between Jan. 1, 2022, to Dec. 31, 2025, does not have to start repayment for five years.
If you fail to start repaying on time, you will have to pay taxes on the allotted repayment amount for that tax year. Lemay further notes buyers who used the plan last year will have to indicate that on their return this spring.
Credits where credit is due
First-time buyers who purchased last year are also eligible for the federal First-Time Home Buyer Tax Credit, a credit worth $10,000, which in real dollars, is worth $1,500 as a refund.
As well, buyers still on the sidelines and renting can use the provincial Renters Affordability Tax Credit, worth up to $525 a year per renter. Manitoba homeowners also have the Education Property Tax Credit, of up to $350 per household, which will be replaced for the 2025 tax year with the Homeowners Affordability Tax Credit worth up to $1,500.
The federal Home Accessibility Tax Credit might also apply to buyers who spend up to $20,000 on modifications to make it more accessible for disabilities, worth up to $3,000 in tax savings. If you’re under age 65, however, to be eligible for this credit, you must first have qualified for the Disability Tax Credit in the given tax year, which requires a form filled out by a physician. If you are 65 and older and make these modifications, you can apply for the Home Accessibility Tax Credit without having the Disability Tax Credit, Lemay says.
One last point of interest for the self-employed: if you work from home, you can claim a portion of your home costs — electric, natural gas, water, etc. — based on how much of the home you use in your work day.
It’s important to know by claiming these expenses, you do not lose your principal residence exemption, which allows you to sell your home without paying taxes on its gain in value.
“You don’t lose your principal residence exemption because its main purpose is still to provide you with a place to live,” Lemay says.
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