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Q. My husband and I married recently, and we have lived together in a rental apartment since we got engaged and married. He has a condo, which he purchased seven years ago, but he has not lived there for the past three years. I’ve never lived in that condo and he didn’t use the Home Buyers’ Plan to purchase it. If we were to purchase a property together, to live in as our matrimonial home:
- Am I eligible to use first-time homebuyer programs? How about my husband?
- If I am eligible, but my husband is not, can I buy a joint property and I still use first-time homebuyer benefits?
A. There are a few first-time home buyer incentives from the federal and provincial governments. The Home Buyers’ Plan (HBP) allows a withdrawal of up to $35,000 from your Registered Retirement Savings Plan (RRSP) to use towards the purchase of a qualifying home. Both spouses can utilize the $35,000 limit if they qualify.
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And to qualify, you must be a first-time home buyer, meaning you did not occupy a home that you or your spouse owned in the four years prior to buying a home. Since you never lived in your husband’s condo, you should qualify. Given he has not lived there for the past three years, he will qualify once he gets to the fourth year of not living in the condo.
To clarify, if you bought a new home in 2020, he would need to have not lived in the condo he owns after January 1, 2016. If he lived in the home in 2017, he may not qualify as a first-time home buyer until January 1, 2022.
There is a federal Home Buyers’ Amount that you may both be eligible for as well, Meredith. It uses the same four-year qualifying period as the HBP. The tax credit is $5,000, but the tax reduction or refund is only 15 % of that amount—so, $750. It is a non-refundable tax credit, so you must have tax owing in order to benefit from the tax savings.
Note that special rules may apply for both the HBP and Home Buyers’ Amount for persons with disabilities or people related to persons with disabilities.
The federal government also recently introduced a First-Time Home Buyer Incentive of up to 5% for resale homes, and up to 10% for newly constructed homes. However, in order to qualify, in addition to meeting the four-year ownership test, your annual income cannot exceed $120,000, and you cannot borrow more than four times your annual income.
There’s a catch, too. If the government chips in 5% of the home purchase price, for example, within 25 years, upon the sale of the property, or upon a few other triggering events, your repayment to the government is based on 5% of your home’s current value—not the purchase price. In essence, the government is co-owning the property with you.
British Columbia, Ontario and Prince Edward Island all offer provincial land transfer tax rebates for first-time home buyers. The City of Toronto offers a rebate on municipal land transfer tax for eligible purchasers.
There are other provincial grant, tax and loan programs as well, so be sure to ask your mortgage specialist, real estate lawyer and accountant to cover all your bases.
A couple more considerations, given your husband’s rental property, Meredith: He may have been eligible to file an election when he moved out to continue to treat the property as his principal residence for tax purposes and avoid capital gains tax for up to four years. He would have had to file a subsection 45(2) election in the year he changed its use if he did not claim capital cost allowance (depreciation), and also properly report the rental income on his tax return.
If you keep the rental property, you may be able to refinance it and borrow against some of the equity to use towards a new home purchase. This could be risky if you become over-leveraged, but it could also help if you are short of the 20% minimum down payment required to avoid Canada Mortgage and Housing Corporation (CMHC) mortgage loan insurance. Remember, the interest on funds borrowed to buy a principal residence is not tax-deductible. Tax deductibility of interest against a rental property is not based solely on the debt being secured by that property, but based on the use of the funds. Using funds borrowed against a rental property to purchase a principal residence would not allow you to deduct that interest.
It sounds like your husband is just on the cusp of being able to qualify for some of the federal and provincial incentives for first time home buyers. If you can wait to meet the four-year requirement, it could be worthwhile, Meredith.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.
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