So you have decided to buy your first home or… you are just thinking about the idea of home ownership.  Maybe you are a person with a disability, or buying for a related person with a disability.  Here is another new Ontario government program (part of “Canada’s Economic Action Plan”) that may help you with the costs associated with buying your first home. 

THE FIRST-TIME HOME BUYERS’ TAX CREDIT (FTHB).  Not only will you need to save for your down payment, you will also need to set funds aside to cover closing costs on your home such as: your legal fees/disbursements – and of course the mandatory land transfer taxes.  The Ontario government has introduced a new tax incentive in 2009, to help put more money back into the pockets of first time home buyers.

If you buy and close on a qualifying home after January 27, 2009, and you are a qualifying individual, you and/or your significant other can claim a non-refundable tax credit.  The FTHB is calculated by multiplying the lowest personal income tax rate for the year by $5,000.  (In 2009 the rate is 15%.)  The maximum credit that you can claim for 2009 is $750.  (15% x $5,000=$750)  You can also transfer any unused portion to your spouse/significant other.  The maximum for both claims combined cannot exceed $750.  So if you and your home qualify under the plan, and you have room to claim the amount on your federal income tax return, you could claim a non-refundable tax credit of up to $750.  You will claim this tax credit during the taxation year that you purchased your home.

“Wait a minute!” you say.  How do I know of I qualify to claim this tax credit?  Ask your local tax specialist/accountant.  They will explain to you how a “non-refundable tax credit” works in your favour, and they will help you put the maximum value of this credit to work for you.  Your accountant will need to know your specific financial situations, to see if either of you qualify to use the tax credit.  How much money you will end up being able to save is dependent on many things: your current income, the actual amount of your closing costs and any other federal tax deductions that you also qualify to use.

So if you have just found out that the government is not going to be giving you a magical “up to $5,000 cash refund”  for your closing costs, take heart.  You can still “prepare to qualify” for a non-refundable tax credit of up to $750.  For one thing, any deduction in “magical income tax land” is a wonderful thing.  Why pay the government – when you can pay yourself instead?  If you cannot use some or all of the deduction… maybe your other half can.  Claiming that extra $750 credit on your return is just icing on the cake!

And remember, these new government incentives are also used as an incentive to stimulate the economy.  How can a first time home buyer help to stimulate the economy?  After all… you are just one or two people starting out your life together.  What can you do to help with such a global issue?  Interesting that you should ask that!  I was just reading an interesting article in the May issue of REM magazine that discussed this in detail.  The article in question was “Each MLS® sale means $46,000 in economic spinoffs.”  An updated study prepared for CREA (The Canadian Real Estate Association) showed that $46,400 in ancillary spending occurred for each residential transaction in Canada completed between 2006 and 2008!

So it seems that the act of buying or selling your home, has a huge ripple effect in both your local and national economy.  You and/or your REALTOR® will hire professionals and services to help you with the buying or selling of your home – and you will also pay taxes to the government.  You will also buy items to improve your new home, or to fix up your existing home for sale.  Who thought that when they were purchasing new carpet and paint, or a new couch and appliances… that they were helping out their local economy?  Now you know.  Companies can stay open, and workers can keep their jobs when people buy from them or use their services.  Consumer confidence is a pretty powerful thing – and you have all the power.  Did you know that?

Next post:  The “First-Time Home Buyers’ Provincial Land Transfer Tax Rebate”.  How much of a refund will I get?

For more information:
In Ontario: www.fin.gc.ca and www.cra-arc.gc.ca
One direct link to information on the FTHB (active as of May 14, 2009) is:
First-Time Home Buyers’ Tax Credit (HBTC)

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