First-Time Home Buyer Incentives in Canada

Purchasing your first home

Buying your first home is a big milestone and getting there can be a long journey. You need to save for a minimum 5% down payment, qualify for a mortgage and have sufficient money left over for both closing costs (minimum 1.5% of the purchase price) as well as furnishing your place. And of course, you’ll need to be able to afford the mortgage payment and new costs associated with home ownership (property taxes, home insurance, maintenance, and more).

Owning a home is a rewarding experience and can teach you a lot about financial discipline. Home ownership can also be a lucrative long-term investment as you begin to build equity by paying off your mortgage.

With home prices increasing, buying your first home can be a challenge. Luckily, government incentives can make entering the market more affordable. Learn more about incentives available to first-time home buyers in Canada on this page and find your best mortgage rates using our online free quote tool.

Who qualifies as a first-time home buyer in Canada?

To qualify for the First-Time Home Buyer Incentive, the Home Buyers’ Amount tax credit or the RRSP Home Buyer's plan, you must meet the following criteria:

• You must be a resident of Canada.
• The property must be in Canada.
• You or your spouse or common law partner must intend to use the home as your primary residence within one year of buying it.
• You must meet the government’s definition of a first-time home buyer. This usually means you can’t have lived in a home you or your spouse or common law partner owned for the last four years. (If you have recently split up with a spouse or partner, you may still qualify).

The government offers the Home Buyers’ Tax Credit and the Home Buyers’ Plan to people with disabilities or those helping disabled family members with a home purchase as well, even if they are not first-time home buyers. The other conditions apply, and the home purchase must help better meet the needs of the person with a disability.

The conditions to qualify for the land transfer tax rebate are slightly different and vary across the provinces that offer the rebate.

Questions about your eligibility? A licensed mortgage broker can answer them and help determine what programs you qualify for. Just use our free online quote tool above. A licensed mortgage broker will be in touch to assist you.

First-time home buyer incentives in Canada

To make it easier for first-time home buyers to purchase a property, the government offers several different kinds of financial incentives. Here are the main ones:

• The First-Time Home Buyer Incentive
• The Home Buyers’ Amount, a tax credit you can claim for a first home purchase
• The Home Buyers’ Plan, a way to use your RRSP savings to help you buy a first home without tax penalties
• A land transfer tax rebate, a refund of taxes you pay as part of your closing costs on a new property

This guide will give you a high-level overview of each of them as you prepare for this exciting next step in your journey towards home ownership.

What is the First Time Home Buyer Incentive? 

The First-Time Home Buyer Incentive is like a second mortgage that you enter into with the federal government of Canada. You can borrow 5% of your home’s purchase price through this program – or 10% if your home is new construction. This can help you to make a larger down payment and lower your monthly mortgage payments.

With the First-Time Home Buyer Incentive, you don’t repay the government the specific dollar figure you borrowed, as with a standard mortgage. Instead, you repay the same percentage of your home’s value, either when you sell the property, or within 25 years. This means that the government shares both the potential risk and reward of homeownership with you.

To qualify you need to save a large enough down payment to qualify for an insured mortgage. This amount can vary with the purchase price, but is at least 5% of the home’s value. You must meet income guidelines, and there are rules about how much the home can cost as well. For most home buyers in Canada, your income can’t exceed $120,000 per year (this includes your partner’s income, if you are buying a home together) and the purchase price of the home can’t be more than four times your income. In the Toronto, Vancouver and Victoria metro areas, your income can be up to $150,000 per year and the home value can be up to 4.5 times your income.

What is the Home Buyers’ Amount?

The Home Buyers’ Amount is a $5,000 tax credit to help reduce the financial burden of purchasing a first home. It can be claimed against personal income and provides a rebate of $750 (multiplying $5,000 by the lowest personal tax bracket of 15%). This first-time homebuyer tax credit can be claimed on line 369 of your personal income tax return in the year you buy a home.

The Home Buyers’ Amount may be split between the buyer and their spouse or common-law partner so long as the total tax credit does not exceed $5,000. It can also be split between any people who decide to jointly purchase a property.

What is the Home Buyers' Plan?

The Home Buyers’ Plan (HBP) allows you to borrow up to $35,000 from your RRSP to be used as a down payment for your home purchase with no tax consequences. It is a great way to access savings that would otherwise be taxed if withdrawn prior to retirement.

To withdraw funds from your RRSP for a home purchase, you must present an agreement to buy or build a qualifying home for yourself or a relative with a disability.

To avoid being taxed on the money you’ve withdrawn, you will need to repay it into your RRSP within 15 years, 1/15 of the total each year. Repayment starts the second year after the year you withdraw the money. Any portion you haven’t repaid in time will be taxed like regular income.

If you have multiple RRSPs, you can withdraw money from each of them, but you are limited to a maximum withdrawal amount of $35,000 in total.

There are a few other rules you will need to follow if you take advantage of the RRSP Home Buyers’ Plan. Here are the requirements:

• You, your spouse/common-law partner, or the person with a disability you're purchasing the home for cannot own the property more than 30 days before you make the withdrawal.
• You must be entitled to receive payments from the RRSP in order to make a withdrawal from it (in other words, you must be the annuitant).
• The money must be in the RRSP for at least 90 days before you can withdraw it.
• You will not be able to withdraw funds from a locked-in or group RRSP.
• If you've participated in HBP before, you can’t owe any remaining balance on the previous withdrawal as of January 1st of the year you plan to make a new HBP withdrawal.
• All funds must be withdrawn in the same year
• Once the withdrawal is made, you must purchase the home before October 1 of the year after the year of withdrawal
• The withdrawal amount must be repaid into your RRSP within 15 years - 1/15 must be repaid every year. Any unpaid portion will be taxed like regular income. Repayment stars the second year following the year of withdrawal.

To participate in the HBP you must take the following steps:

• Complete form T1036 (you can find it online) and provide it to your RRSP holder
• Withdraw funds
• Receive a T4RSP statement from your RRSP holder containing details of the withdrawal and include it in your personal tax return
• You will receive a notice of assessment showing you HBP details and how much must be repaid the following year.

What is a land transfer tax rebate?

There are many costs related to a home purchase, but one that’s often forgotten is the land transfer tax. This makes up a significant share of closing costs for many home buyers. Provincial governments typically charge land transfer tax, except for Alberta and Saskatchewan. You have to pay this tax up front when you buy your home.

The amount of tax is based on the price of the property, and it can add up, especially if your home’s purchase price is high.

Fortunately, many first-time home buyers can take advantage of special rebates of the land transfer tax offered by provincial governments. This first-time home buyer incentive helps ease your way into the market. British Columbia, Ontario and P.E.I. offer a land transfer tax rebate to first-time home buyers.

Toronto home buyers should be aware that the city government charges a land transfer tax, separate from Ontario’s provincial land transfer tax. Fortunately, like the province, the city offers a rebate of this tax to eligible Toronto first-time home buyers, of up to $4,475.00.