First-Time Home Buyer Tax Credit: Fédéral and Provincial Programs

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First-time homebuyers in Canada benefit from specific tax credits at both fédéral and provincial levels that reduce the tax burden associated with purchasing a first home. At the fédéral level, the First-Time Home Buyers' Tax Credit (HBTC) offers a non-refundable credit of $10,000, resulting in a tax reduction of $1,500 (at the lowest fédéral rate of 15%). This credit was doubled to $10,000 in the 2022 fédéral budget, up from the original $5,000 established in 2009. To qualify, the buyer must not have owned and occupied a home during the year of purchase or the four preceding calendar years. The property must be acquired with the intention of making it a principal residence. In Quebec, provincial tax credits for first-time buyers apply through various measures. The fédéral Home Buyers' Plan (HBP) also allows withdrawals of up to $60,000 from RRSPs without immédiate taxation for a first home purchase, with repayment spread over 15 years. The First Home Savings Account (FHSA), introduced in 2023, combines RRSP and TFSA advantages with a maximum contribution of $8,000 per year, up to a lifetime limit of $40,000. AMF-certified mortgage brokers must be familiar with these programs to properly advise first-time buyer clients and maximize available benefits.

Tax Credits for Purchasing a First Home

Becoming a homeowner for the first time is a defining moment in the financial lives of Canadians. To facilitate this transition, fédéral and provincial governments have established several tax measures that reduce the financial burden on first-time buyers. While these credits and programs do not cover the full cost of acquisition, they represent tangible assistance that can total several thousand dollars.

The Fédéral First-Time Home Buyers' Tax Credit (HBTC)

Introduced in 2009 and enhanced in 2022, the HBTC is a non-refundable tax credit offered to buyers of a qualifying first home. The credit amount is $10,000, applied at the lowest tax rate (15%), resulting in a maximum tax reduction of $1,500. The credit is claimed on line 31270 of the fédéral T1 tax return for the year the home is acquired. If both spouses qualify, they can share the credit, but the combined total cannot exceed $10,000.

Qualifying home: A housing unit located in Canada that the buyer or their spouse intends to occupy as their principal place of residence no later than one year after acquisition. This includes single-family homes, condos, townhouses, mobile homes, and even a share in a housing cooperative.

The Home Buyers' Plan (HBP)

The HBP allows eligible first-time buyers to withdraw up to $60,000 from their Registered Retirement Savings Plan (RRSP) to finance the purchase or construction of a qualifying home. This withdrawal is tax-exempt at the time of withdrawal, provided repayment begins no later than the second year following the withdrawal and is spread over a maximum period of 15 years. Each year, the buyer must repay at minimum one-fifteenth of the amount withdrawn. If the annual repayment is not made, the unpaid portion is added to taxable income for that year.

The FHSA: The Best of Both Worlds

The First Home Savings Account (FHSA), available since April 2023, combines the advantages of the RRSP and the TFSA. Contributions are deductible from taxable income (like an RRSP), and withdrawals made for the purchase of a qualifying home are entirely tax-free (like a TFSA). The maximum annual contribution is $8,000, with a lifetime cap of $40,000. Unused contribution room can be carried forward to the following year, up to a maximum carry-forward of $8,000. A first-time buyer can therefore combine the HBP and the FHSA to mobilize up to $100,000 from registered plans.

The Situation in Quebec

The Quebec government does not offer a permanent provincial tax credit specifically dedicated to first-time buyers. However, Quebec residents fully benefit from all the fédéral programs mentioned above. Additionally, some municipalities occasionally offer assistance programs, such as transfer duty rebates or homeownership grants. It is recommended to check with your municipality whether such programs exist at the time of your purchase.

Frequently Asked Questions

What is the amount of the fédéral first-time buyer tax credit?

The First-Time Home Buyers' Tax Credit (HBTC) provides a non-refundable credit based on $10,000, resulting in a tax savings of $1,500 calculated at the lowest fédéral rate of 15%. This amount is claimed on your fédéral tax return for the year of purchase.

How does the HBP work for first-time buyers?

The Home Buyers' Plan (HBP) allows you to withdraw up to $60,000 from your RRSP for the purchase of a first home, without paying tax at the time of withdrawal. Repayment must begin the second year after the withdrawal and is spread over a maximum period of 15 years. If an annual payment is not made, it is added to your taxable income.

What is the FHSA and how does it work?

The First Home Savings Account (FHSA) is a registered plan allowing you to save up to $8,000 per year ($40,000 lifetime) for the purchase of a first home. Contributions are tax-deductible like an RRSP, and withdrawals for the purchase of a qualifying property are tax-free like a TFSA.

Can you combine the HBP and the FHSA?

Yes, an eligible first-time buyer can use both the HBP (up to $60,000 from RRSP) and the FHSA (up to $40,000) for the purchase of the same property. This potentially allows mobilizing up to $100,000 in funds from registered plans for the down payment.

Is there a provincial tax credit in Quebec for first-time buyers?

Quebec does not offer a permanent provincial tax credit specifically for first-time buyers comparable to the fédéral HBTC. However, Quebec buyers fully benefit from the fédéral credit, the HBP, and the FHSA. Occasional municipal or point-in-time measures may sometimes apply.

What are the criteria to be considered a first-time buyer?

For the fédéral HBTC and HBP, you are considered a first-time buyer if you have not owned and occupied a home during the year of purchase or the four preceding calendar years. Your spouse or common-law partner must also meet this condition. If you are buying with a partner who has been an owner during that period, you will not be eligible.