If you are a first time buyer, and have assets invested in an RRSP, you can withdraw up to $20,000 to apply towards the purchase of a home. You are considered a first time home buyer if you have not lived in a home owned by yourself or your spouse in the last five years.
In addition to being a first time home buyer, you must have entered into a written agreement to buy or build a home and intend to occupy that home as a principal residence. Any funds you wish to withdraw under the program must have been in your RRSP for at least 90 days. If you have less than $20,000 in an RRSP, its not too late to save money. You can make a contribution to your RRSP early in the year before the RRSP deadline. You can then receive a tax refund and 90 days later withdraw the RRSP contribution for use in buying a home.
Once you have applied the RRSP funds to the purchase of your home, you are required to pay back the RRSP over 15 years. Ordinarily, you will deposit 1/15 of the amount withdrawn back into your RRSP in each of the 15 years following your home purchase. If you fail to repay an amount required in any given year, then that amount will be included in your taxable income for the year.
In addition to withdrawing RRSP funds, the Ontario government has
established the Ontario Home Ownership Savings Plan (OHOSP) which
provides a tax credit for contributions of up to $2,000 per year to
the plan. In order to qualify, you must be earning under $40,000 per
year, or have combined spousal incomes of less than $80,000 per year.
Once you have signed an agreement of purchase and sale for a home,
your bank will release the funds to your solicitor to be applied
toward the purchase. If your plan was set up prior to January 1, 1994
and the purchase price of your home is less than $200,000 you may
also receive a refund of all or part of the Land Transfer Tax payable
on the purchase. This does not apply to OHOSPs set up since 1994.
First time home buyers entering into an agreement to buy newly constructed homes between May 8, 1996 and March 31, 2001 are eligible for an instant refund of their Land Transfer Tax paid up to $1,725 (or $2,000 for agreements executed after March 31, 1999) per home. For this program a first time buyer is a buyer at least 18 years old who has not owned an interest in a home anywhere in the world, and whose spouse has also not owned an interest in a home anywhere in the world while he or she was married to the home buyer.
If you are a first time buyer, but your spouse owned a home before you were married, you will generally qualify for half the rebate. If, however, your spouse owned a home, even in his or her name only, while you were married, you are disqualified from claiming the rebate. You will be disqualified even if you are a common law spouse under the Family Law Act. That definition applies if you were living together for three years, or for a lesser time if you have a child together.
In order to qualify, a first time buyer must enter into an Agreement of Purchase and Sale for a new home between May 8, 1996 and March 31, 2000 and register the conveyance at a Land Registry Office by December 31, 2000. In the case of a condominium, however, you will be eligible for the refund if your interim closing and occupation takes place by December 31, 2000 provided that your final closing occurs no later than December 31, 2001.
The New Home Buyers Land Transfer Tax refund is not available to buyers claiming a Land Transfer Tax refund under an OHOSP plan. A buyer who qualifies for both programs will have to decide which refund to claim. Generally, if you are buying a newly constructed home within the required dates, you are better off claiming the new home buyers refund than the OHOSP refund.
NOTE: The recently announced extension to the Land Transfer Tax Program has not yet been passed into law, so for buyers who signed agreements after March 31, 2000 they must pay the tax and apply for a refund which will be granted after the legislation is passed.
If you have any more questions, or require a lawyer for the purchase of a home contact Bryan Dale today!