What is the First-time Home Buyers’ Tax Credit and How Does it Work?

Jordann Brown
by Jordann Brown February 17, 2020 / No Comments

Purchasing your first home in 2020 can feel intimidating, especially when the extra fees you’ll need to pay during closing start to add up. Legal expenses, inspection fees, and land transfer taxes – the list of closing costs seems to go on and on. That can make purchasing a home for the very first time feel less and less achievable.

If you’re starting to pinch pennies to become a first-time home buyer, there are a few ways to make life easier. The First-Time Home Buyers’ Tax Credit – sometimes called the HBTC – will help you earn small rebates that help recover some of those costs. Here’s what you need to know about this government program.

What is the First-Time Home Buyers’ Tax Credit?

The First-Time Home Buyer’s Tax Credit is a $5,000 non-refundable tax credit. If you’re buying a home for the first time, claiming the first-time home buyer credit can land you a total tax rebate of $750. While $750 isn’t a life-changing amount of money, it can make buying your first home a little bit easier. The First-Time Home Buyer’s Tax Credit was first introduced in 2009 and is available to all qualifying Canadian taxpayers.

Who can claim the First-Time Home Buyers’ Tax Credit?

How do you know if you are a first-time homebuyer? The Canada Revenue Agency (CRA) sets out a simple list of requirements that determine who counts as first-time homebuyers. Here’s how to know if you qualify:

  • You or your partner bought a home that qualifies (more on that below)
  • You didn’t live in another home owned by you or your partner in the same year, or any of the four years before.

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Does my home qualify?

Generally, the vast majority of homes in Canada qualify for the First-Time Home Buyer’ Tax Credit, but there are a few requirements to keep in mind. Your home qualifies if:

  • It is a single-family, semi-detached, townhouse, mobile home, or condo,
  • It is an existing or new construction home located in Canada,
  • You’ve moved into the home within one year of making the purchase, and
  • The home is listed as your principal residence and is registered under your name or your partner’s name.

Note that for cooperative housing units, shares that provide the right to tenancy won’t qualify. Only shares that provide possession of the unit will be eligible.

Claiming the credit for people with disabilities

If you’re a person with a disability and you claim the Disability Tax Credit on your tax return, you can claim the First-Time Home Buyers’ Canada Tax Credit even if you’ve already owned a home in the past. There are a few criteria that you’ll need to meet:

  • You must claim the disability amount on your tax return in the same tax year as when you purchase the home,
  • The home must be suitable for the disabled person’s needs, and
  • You must occupy the home within one year of purchasing it.

Claiming the tax credit requires you to fill out Form T2201, Disability Tax Credit Certificate, and have a medical practitioner certify that you have a severe and prolonged impairment.

How do I claim the First-Time Home Buyer’s Tax Credit?

Claiming the First-Time Home Buyer’s Tax Credit is simple. If you’re using online software like Turbotax, you’ll answer ‘yes’ to their questions about whether you purchased a home for the first time in this tax year. If you’re preparing your taxes yourself, you’ll fill in the CRA home buyer’s amount on Line 31270 of your Schedule 1 (previously line 369 on your income tax return) with the amount $5,000. That’s it. The CRA will do the rest.

What if I’m buying a home with someone else (spouse, common-law partner, or friend)?

The First-Time Home Buyers’ Tax Credit can only be claimed once per home. That means if you’re buying your home with a partner, co-purchaser, or buying a home with a joint mortgage, you can only claim the tax credit once. You can choose how you claim the credit, however. Either you could claim the full $5,000, your partner could, or you could split it. The choice is yours, as long as the total doesn’t exceed $5,000.

Does the HBTC affect my eligibility for the Home Buyers’ Plan?

The First-Time Home Buyers’ Tax Credit should not be confused with the Home Buyer’s Plan. These are two different government programs. The First-Time Home Buyers’ Tax Credit is the non-refundable tax credit we’ve discussed above. The Home Buyer’s Plan, on the other hand, lets you withdraw up to $35,000 from your RRSP to use as a down payment on your first home. Since they are two separate programs, using one doesn’t affect your ability to use the other.

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What other tax credits am I eligible for?

If you’ve received the First-Time Home Buyers’ Tax Credit, you can still apply for a variety of other first homebuyers’ credits, and grants, including:

  • First-time homebuyer incentive: This federal scheme aims to help first-time homebuyers by paying up to 10% of the cost of their home in a shared equity loan. Under this scheme, the government becomes a co-owner of the home. It’s a complex program, so be sure to investigate whether it’s right for you.
  • Land transfer tax rebates: Some cities and municipalities offer a rebate to help first-time homebuyers offset the cost of their land transfer tax.
  • GST/HST New Housing Rebate: If you paid GST or HST when purchasing your home, you may be eligible for a rebate from your federal or provincial government.
  • Home Buyers’ Plan: The federal government allows you to borrow up to $35,000 from your RRSP to purchase your first home.

The bottom line

The home buyers’ tax credit and rebates can help you save hundreds on the upfront cost of purchasing a home, and you should use it! However, the single best way to save money when buying a home is to shop around for the best mortgage rate. Using Ratehub.ca to find a low mortgage rate can save you tens of thousands of dollars over the life of your mortgage. It’s the single best thing to make your monthly mortgage payment more affordable – the perfect way to start your very first homeownership journey.

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