Buying your first home is a big step and an expensive one. Luckily, the 2019 Federal Budget proposes a series of tax changes that could help first-time home buyers bear that financial burden more manageably.
The main changes include increases to the RRSP Home Buyer’s Plan withdrawal limits for first-time home buyers and access to a First-Time Home Buyer Incentive.
In addition, separated individuals will now find it easier to access the Home Buyer’s Plan, while owners converting multi-unit residential properties from income earning to personal use, or vice versa, will be able to defer taxes on deemed disposal until a future date.
The Registered Retirement Savings Plan (RRSP) Home Buyer’s Plan (HBP) allows first-time home buyers to withdraw money from their RRSP to help finance a new home, whether purchased or built. Unlike regular withdrawals from your RRSP, amounts withdrawn under the HBP are not taxable, however, they must be repaid within a specified time period.
Currently, the withdrawal amount under the HBP is capped at $25,000 per eligible spouse. Starting in March 2019, the maximum withdrawal has been increased to $35,000 per spouse.
The 2019 Federal Budget is proposing a new program in which qualified first-time home buyers could receive up to 10% of their homes purchase price on new-built homes and up to 5% on existing homes from the Canada Mortgage and Housing Corporation (CMHC). While this loan would have to be paid back in future years, it is intended to help bring down the initial mortgage costs of borrowers.
To be eligible you must have a household income below $120,000 and be able to contribute the minimum 5% down payment to the purchase of the home. In addition, the mortgage value plus the CMHC loan must be less than four times the participants annual income.
More details are to follow later this year.
In addition to the increase in withdrawal limits for the RRSP Home Buyer’s Plan mentioned above, additional changes are proposed to better accommodate marital breakdowns, even if the individual does not qualify as a first-time home buyer.
Proposed changes would allow spouses living separate and apart from their spouse for more than 90 days and who began to live separate and apart in the past five years, including the year of withdrawal, to qualify for HBP withdrawals.
When property is converted from personal use to income earning or income earning to personal use, it is deemed disposed of and reacquired. When the use of the whole property is converted, taxpayers can elect to defer the recognition of capital gains until the property is sold. This, however, is not currently the case for multi-unit residential properties, such as duplexes and triplexes, where only part of the property is converted.
The budget proposes to extend the election to not have deemed disposition occur until sale for conversions on multi-unit residential properties.
For more information on these proposed housing measures and how they will affect your tax planning and home ownership strategy, contact us today.