First Time Home Buyer Exemptions
The Federal Home Buyers Plan (HBP) allows first time home buyers to withdraw up to $25,000 from their RRSP for the purpose of buying or building a home. Spouses may each withdraw $25,000 and married couples are considered first time buyers if neither has owned a principal residence in the past five years. The primary benefits are that the RRSP issuer will not withhold tax on the amount given nor will it have to be claimed as income. The amount must be repaid within 15 years with a minimum annual payment of 1/15 of the amount withdrawn. If the repayment is not made for a given year the minimum repayment is included as taxable income for that year.
The following conditions apply:
- Have not participated in the Plan previously, you can only use the Plan once.
- You must be a resident of Canada though not a necessarily a Canadian Citizen.
- The home must be within Canada and must be a principal residence.
- You must enter into a Contract to buy or build a qualifying home.
- You must make your withdrawal request the same year you are buying the home.
To see if you qualify, Click Here and be taken to Canada Revenue Agency's Home Buyers Plan Request to Withdraw Funds or call 1-800-O-Canada.
First time buyers may qualify to put down only 5% of the purchase price of the home as a down payment, with the following regulations:
- Within the Lower Mainland the purchase price cannot exceed $325,000.
- The home must be a principal residence.
- The buyers must not have owned a home in the past 5 years.
- Payments for principal, interest, property tax, heating and 50% of any strata fees must not exceed 32% of the gross family income.
- Total debt load cannot exceed 40% of gross family income.
- CMHC mortgage insurance is required by law and must be purchased at a cost of 2.5% of the balance of the mortgage balance. This cost may be added to the mortgage and paid off monthly as part of the mortgage.
- The downpayment must come from the buyers own resources. A gift must be in the buyers possession for a minimum of 30 days before making an offer on a property.
- The mortgage term must be for a minimum of 3 years but the buyer must qualify for a 5 year term or longer. The maximum amortization period is 25 years.
- The buyer must have been employed in the same position for a minimum of one year.
- The buyer must have a clean credit rating.
- The buyer must be able to demonstrate that at the time of application that they are able to pay the closing costs of at least 1.5% of the purchase price, in addition to the 5% down payment.
Your bank or mortgage broker may have additional requirements and these are all subject to change. Please consult with your lender or mortgage broker.
First time buyers also receive an exemption from the Property Transfer Tax if the following conditions are met:
- You are a Canadian Citizen, or a permanent resident as determined by Immigration Canada;
- You have lived in British Columbia for 12 consecutive months immediately before the date;
- You register the property, or you have filed 2 income tax returns as a British Columbia resident during the 6 years before the date you register the property;
- You have never owned an interest in a principal residence anywhere in the world at anytime; and
- You have never received a first time home buyers’ exemption or refund.
The property must also qualify, as follows:
- The fair market value of the property is not more than the current threshold of $425,000;
- The land is 0.5 hectares (1.24 acres) or smaller; and
- The property will only be used as your principal residence.
- If the property does not meet all of these requirements, you may still qualify for a partial exemption.
Requirements to keep the exemption are:
- You need to occupy the property within 92 days of the date you register the property and continue to use the property as your principal residence for at least 1 year after you register the property;
- If the land is vacant when you purchase the property, a principal residence needs to be built on the property within 1 year of the registration date, and you need to reside on the property for the remainder of that year. The fair market value of the land, plus the cost of building any improvements on the land cannot exceed the current threshold of $425,000.
- The ministry will send you a letter at the end of the first year you own the property. If your property purchase was registered on, or after, February 20, 2008, the letter will ask you to
- confirm that the property is still your principal residence. If your property purchase was registered before February 20, 2008, the letter will ask for details of your financial account(s) that you have registered against your property from the date of registration until February 20, 2008;
- If your property purchase was registered before February 20, 2008, and you paid down your mortgage before February 20, 2008, there are limitations on how much of your financing you can pay down. For further details, please see Bulletin PTT 004, First Time Home Buyers’ Program.
- You may still qualify for a partial exemption if you pay down your financing more than the limitation amount before February 20, 2008, or if you move off the property before the end of
- the first year.
- It is your responsibility to make sure the ministry receives all of the necessary information. If the ministry does not receive the information, you will be assessed for the property transfer.
You apply for the exemption when you register the property at the Land Title office. Generally, a lawyer or notary public registers the property and applies for the exemption on your behalf. The Land Title office sends your application to the Ministry of Small Business and Revenue to verify your eligibility. Make sure you do not apply for the exemption if you have owned an interest in a principal residence anywhere in the world at anytime. If you do this, you will be assessed for the tax due
and an additional penalty equal to the tax due.
If you do not apply for the exemption when you register the property at the Land Title office, you can apply for a refund of the property transfer tax you pay within 18 months of the date you register the property.
Click Here for more information from the Government of B.C.
The above information was obtained from sources deemed to be reliable,
and while thought to be correct is not guaranteed.