When you are considering the purchase of a home, you can by no means forget the first-time home buyer tax credit. This tax credit in Canada is designed to make housing more affordable, and you can benefit greatly from it if you qualify. So, when you apply for a mortgage by clicking on one of the current mortgage rates found elsewhere on this site, keep the tax credit in mind. Now, however, you should read this guide to the tax credit to figure out if you can take advantage of it.
With the world economy reeling in early 2009, Canada was not left unaffected. To help the country get itself out of its economic slump, the Canadian government moved to stimulate economic demand by introducing Canada’s Economic Action Plan, a budget package that included a number of tax credits and spending proposals designed to get consumers spending money again and to put people to work. The first-time home buyers’ tax credit was just one part of this action plan, and it was introduced to help make buying a home slightly more affordable. As the thinking goes, if people are buying homes, they are putting construction workers, real estate agents, lending officers and other individuals to work. These individuals, in turn, spend money, which can lead to job creation in many other sectors. The economic plan was put forward under the oversight of Finance Minister Jim Flaherty and Prime Minister Stephen Harper.
In any case, the tax credit is a refundable tax credit that can reduce the amount of income tax owed to the federal government by up to $750 in the tax year during which the home was purchased. It does not matter whether the home that is purchased is a new home or a previously owned home because both new and resale homes qualify. However, you do have to meet other standards that are outlined in the next section.
The adjective first-time is key to understanding who qualifies for this special income tax credit. As long as you are considered a first-time home buyer according to the Canadian government, you can take advantage of this tax credit on any qualifying home* purchased after January 27, 2009.
The Canadian government says you are a first-time home buyer if:
• you, your spouse or your common-law partner purchase a qualifying home
• you, your spouse or your common-law partner have not owned a home in the year you purchase your new home or in any of the four years that have preceded it
*As noted above, a qualifying home can be either new construction or a resale home. This includes homes of all shapes and sizes such as condominiums, townhomes, mobile homes, apartments, semi-detached homes, detached single-family homes, and co-operative housing in which you have an equity or ownership interest.
As the law is currently written, you can take advantage of this first-time home buyer tax credit as long as you, your spouse or your common-law partner have not owned a home during the year you buy the home or four years prior to it. This means that until the law changes, you can apply the tax credit multiple times as long as you meet the first-time home buyer criteria. In other words, you can be counted as a first-time home buyer according to current criteria even if you have purchased a home before.
Individuals who have physical or mental disabilities qualify for this refundable tax credit even if they do not meet the first-time home buyer criteria outlined in the previous section. The ownership time period rules given above are waived and the tax credit of up to $750 is given to individuals who:
• buy a qualifying home and also qualify for the disability amount on line 316 of their federal income tax return due to a prolonged and serious physical or mental disability
• buy a qualifying home home for someone else who does qualify for the disability amount
Under the guidelines for the first-time home buyer tax credit and disabled persons, a qualifying home is any residence that suits the disabled person’s needs better than his or her existing home, or it is any home is more accessible to that person and his or her caregivers than the disabled person’s current home.
The simple answer to this question is that you save money when you take advantage of the first-time home buyer tax credit. By reducing the amount of income tax you owe, the credit lowers your tax bill when tax time rolls around. It may even cause your required tax to drop so low that you are owed a refund, although money will not be returned to you if your tax credit exceeds the total amount you were required to pay in income tax.
To finish our look at the first-time Canada home buyer tax credit, we will provide some brief guidance on how to apply for the credit on your tax return. All that you have to do is enter $5,000 on line 369 of Schedule 1 and follow the directions for computing the credit. Your calculations will result in a credit of up to $750 that you will deduct from the total income tax you are required to pay that year. If you and your spouse or common-law partner file separately, you can divide the $5,000 between both tax returns however you want, or one person can claim it entirely for himself or herself. The end result will be the same: Your household will receive up to a total of $750 in tax credit for your home purchase.
Save receipts from your home purchase and other supporting mortgage documents in case the Canada Revenue Agency later demands to see them. That way, you can back up your tax return if you are ever audited.