How the 2022 budget might improve the affordability factor
Once upon a time, buying a home was considered to be a rite of passage for the average, hard-working Canadian.
In today’s world, however, soaring real estate prices and increased cost of living are making it more and more difficult for the average person to realize their dreams of homeownership.
And the top two concerns for aspiring Canadian homebuyers:
- 70% worry about being able to save up enough money for a down payment;
- While just over 80% of Canadians between the ages of 18 and 28 don’t think they’ll be able to afford to buy a home in their city of choice (causing many to consider relocating to other provinces where the housing market is a little cheaper)
When you also factor in that 72% of Canadians admit to not having a written financial plan, it’s easy to see how homeownership in the 21st century could be perceived as something that is out of reach.
Enter the Tax-Free First Home Savings Account (FHSA).
Introduced by the federal government in their recent April 2022 budget, the FHSA will offer aspiring first-time homeowners an all-new dedicated solution to their down payment savings woes.
A few FHSA highlights:
- Beginning in January 2023, Canadians who are looking to purchase their first home will be able to contribute up to $8,000 a year to the FHSA (up to a lifetime total of $40,000)
- Similar to an RRSP, contributions to the FHSA are tax-deductible
- And just like a TFSA, withdrawals from an FHSA, including capital gains, will be non-taxable (so long as the funds are used for the sole purpose of buying a home)
A few things to keep in mind when it comes to the FHSA:
- You must be at least 18 years of age and a resident of Canada in order to contribute
- You must not have lived in a home that you owned for the past 5 years (including the year you open the account)
- You can only participate in an FHSA once in your lifetime to purchase a single property
- Unlike a TFSA, unused annual contribution room cannot be carried forward into subsequent calendar years (an incentive to ‘use it, or lose it’)
- Once a non-taxable withdrawal is made towards a qualifying purchase of a home, the account must be closed within one year from the first withdrawal
- Also, note that the FHSA and RRSP Home Buyers’ Plan cannot be used simultaneously (in case you were thinking of going that route to double-up on your buying power) — however, you can use TFSA withdrawals in tandem with your FHSA
- While one individual can open multiple FHSAs, the total amount contributed cannot exceed the annual ($8,000) and lifetime ($40,000) limits — yet if your partner or spouse were to also open an FHSA, that would be an allowable and effective way to maximize your savings potential
- Finally, funds accumulated in an FHSA must be used (for a qualifying first home purchase) within 15 years of opening the account—after which it is to be closed, with any unused savings transferred into an RRSP or RRIF (or the funds can be withdrawn on a taxable basis)
Another announcement coming out of the federal budget that might benefit the average Canadian homebuyer is the proposed anti-flipping measure.
Under the proposed legislation:
- Canadians who purchase and then sell a property in less than 12 months will be considered to be flipping (and will see profits from that sale taxed as business income)
- Profits from flipping properties will not eligible for either the capital gains inclusion rate or the principal residence exemption
- However, exemptions to the proposed anti-flipping rule would apply for Canadians who sell their home within 12 months due to certain life circumstances, such as death, disability, birth of a child, a new job, insolvency, or a divorce
- The proposed anti-flipping measure would apply to residential properties sold on or after Jan. 1, 2023
Other noteworthy federal budget mentions for Canadian homebuyers:
Home Buyers’ Amount Tax Credit:
A 15% non-refundable credit that allows first-time purchasers of homes (and purchasers with disabilities) to claim up to $5,000 in the year when they purchase a home for a maximum tax credit of up to $750.
What’s changed? Base amount has been doubled to $10,000, which would bring the total tax credit to $1,500 and would apply to home purchases made on or after January 1, 2022.
Home Accessibility Tax Credit:
A 15% non-refundable credit that provides recognition of eligible home renovation or alteration expenses made for an individual who is at least 65, or is entitled to the Disability Tax Credit.
What’s changed? Eligible credit amount has been doubled to $20,000 (from $10,000) effective for the 2022 tax year. This increase will provide enhanced support to conduct significant renovations to assist individuals with mobility challenges in accessing other floors/areas of their home.
The federal budget also proposed a new Multigenerational Home Renovation Tax Credit:
- A 15% refundable credit up to $50,000 for eligible expenses incurred for a qualifying renovation in order to create a secondary dwelling unit in your home for a senior relative, or a person in your family with a disability
- A secondary unit would be defined as a self-contained dwelling unit with a private entrance, kitchen, bathroom facilities, and sleeping area
- Eligible expenses include the cost of labour and professional services, building materials, fixtures, equipment rentals, and permits, but does not include furniture
- Interest costs to finance a renovation will also not be eligible
- The credit can be claimed either by the eligible person, or by the qualifying relative in 2023 (and all expenses must be supported by receipts for work performed and paid for, and/or goods acquired during that calendar year)
- Expenses can only be claimed once (I.e. expenses would not be available for this tax credit if they were also claimed under the Medical Expense Tax Credit and/or Home Accessibility Tax Credit)
Go beyond the federal budget by seeing how your home-buying plans fit within an educator-specific budget.
That’s where Educators Financial Group comes in. Regardless of where you are on the pay grid, how close you are to retirement, or if you’re already collecting pension income—we can provide you with the borrowing solutions you need to help make your homeownership dreams a reality.
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