A Canadian tax-free savings account for first-time home buyers is in the works
The federal government presents more support to reduce one of the biggest hurdles for young people trying to break into a tough real estate market: down payments. As part of Budget 2022, first-time home buyers can now benefit from a tax-free savings account and an increased tax credit to help cover the cost of a down payment.
Just like a Registered Retirement Savings Plan (RRSP), contributions to a First Home Tax-Free Savings Account (FHSA) are tax deductible. Withdrawals from an FHSA for the purchase of a home are not taxable.
Starting in 2023, annual savings of $8,000 per person (up to a maximum of $40,000) can be used to purchase a first home. Individual Tax-Free Savings Accounts can be pooled for households investing together in real estate.
Any Canadian resident 18 years of age or older can qualify to open an FHSA, as long as they have not owned a home within the previous four years.
To help potential buyers save for a home, the government is also doubling the first-time home buyer’s tax credit to $10,000. The credit provides up to $1,500 in direct support to homebuyers and can apply to homes purchased on or after January 1 of this year.
Meanwhile, the First-Time Home Buyer Incentive allows eligible first-time home buyers to reduce borrowing costs by sharing them with the government.
The Shared Mortgage Program allows buyers to borrow 5% or 10% of the purchase price of a home and then pay off the same percentage of the home’s value upon sale (or within 25 years) .
This means that someone who gets a 10% incentive to buy a house for $200,000, or $20,000, will have to pay back $15,000 if the value of their house drops to $150,000.
The budget changes are aimed at tackling rising house prices across the country. In Montreal, the average sale price of a home reached $583,295 last month, marking an 18% increase since last year and an absolute record.