Government Shared-Equity
Incentive
The government of Canada offers a First-Time
Home Buyer
Incentive program starting September 2, 2019. Under the program, you can apply
for a 5% or
10% shared-equity mortgage with the Government of Canada, reducing your mortgage payments.
Essentially,
the government will help you purchase 5% or 10% of your home, to be paid back at a later
date.
You are eligible to apply for 5% of your purchase price in shared equity. Given your
selections, you are
eligible for a maximum of $2,500 in
government incentives.
Frequently Asked Questions
Am I eligible for the program?
The program is only available for CMHC-insured mortgages. Therefore, you are automatically
ineligible if
- your purchase price is $600,000 or above, or
- your down payment is at least 20% of your purchase price.
To qualify for a government shared-equity incentive,
- you must be a citizen or permanent resident of Canada,
- you or your partner must be a first-time home-buyer (see ‘Am I a first-time home-buyer?’
below), and
- your annual household income cannot exceed $120,000.
Even if you satisfy these criteria, there are limits on how much you can borrow depending on
your annual
household income. See ‘What is the borrowing limit, and how does it work?’ below. Other
criteria
may apply in special situations.
Am I a first-time home-buyer?
You qualify as a first-time
home-buyer if
- you have never purchased a home,
- you have gone through a breakdown of marriage or common-law partnership, or
- in the last four years, you have not occupied a home owned by you or your
partner.
You only need to satisfy at least one of the above criteria to qualify. Only one
spouse/common-law
partner needs to meet the above requirements to qualify.
How long does the program last?
The program launches September 2, 2019, and is available for any purchase closed after
November 1, 2019.
The program will end either:
- after three years (September 2, 2022), or
- when a total of $1.25 billion of incentives have been granted,
whichever occurs sooner. Many experts expect the funding to go quickly, so it may be prudent
to act as
soon as possible.
How much do I qualify for?
- For existing, resale, or mobile/manufactured homes, you can apply for a 5% shared-equity
incentive.
- For newly constructed homes, you have the option of applying for a 5% or a 10%
shared-equity
incentive.
Borrowing limits may apply in both of these cases. See ‘What is the borrowing limit, and how
does it
work?’ below.
What is the borrowing limit, and how does it work?
Your borrowing limit is four times your annual household income. Your total borrowing
amount
(mortgage principal + shared-equity incentive) cannot exceed this limit. The CMHC
mortgage insurance
premium does not count towards
the limit.
No partial incentives are given. The only options are 5% and 10% shared-equity.
How much do I need to pay back?
The amount you owe depends on the future fair-market value of your property at the time of
repayment. You will need pay 5% or 10% of the future property value, depending on
which incentive
program you applied for. No interest is
charged in either case.
When do I need to pay back the incentive?
You must pay back the incentive within 25 years or if the property is sold, whichever occurs
first. You
must pay the amount in full.
There are no prepayment fees or penalties for an early payment. If you believe your
property value
will rise in the future, paying early may lower your payment amount.
I am buying a mobile or manufactured home. Am I eligible?
Yes. However, you can only apply for the 5% shared-equity incentive option, even if the home
is new.
Examples
John and his wife want to buy a newly constructed home for
$400,000. They would qualify for
10% of the purchase price, or $40,000, under the
shared-equity incentive program.
At a 3% interest rate, this would lower their monthly payment
from $1,870 to $1,673, saving
them nearly $200 per month, or $60,000, over the
lifetime of the mortgage.*
Assuming they make the minimum 5% ($20,000) down payment, John
and his wife would need to
make between $95,000 and $120,000 in total to qualify.
*Assuming a 5-year fixed term with 25-year amortization and 5%
down payment.
Marissa makes $80,000 a year, and has $60,000 saved up for a down
payment.. To qualify for
the shared-equity incentive, she can purchase a home worth up to
$380,000.
She buys a resale condo for $360,000. Marissa is eligible for
$18,000 from the Government
of Canada First-Time Home Buyer Incentive, allowing her to take
out a mortgage of only
$282,000 plus insurance.
Land Transfer Tax Rebate
When you acquire a property (and the land it rests on), you must pay a land transfer
tax to the
government after the transaction closes. As a first-time home buyer, you are eligible for
land transfer
tax rebates, often worth
thousands. A detailed breakdown of your land transfer tax costs and savings is below.
|
Provincial |
$ |
250.00 |
| + |
Municipal |
$ |
0.00
|
| − |
Rebate |
$ |
250.00 |
| = |
Total Tax |
$ |
0.00
|
Detailed Breakdown
Ontario Land Transfer Tax
Ontario levies a land transfer tax by applying a tax-bracket system to your property’s
purchase price.
The full breakdown of your provincial land transfer tax is shown below.
| Tax Bracket |
Marginal Tax Rate |
|
Marginal Purchase Price |
|
Marginal Tax |
| First $55,00055k |
0.5% |
× |
$ |
50,00050k |
= |
$ |
250250 |
| $55,00055k to
$250,000250k |
1.0% |
× |
$ |
00 |
= |
$ |
00 |
| $250,000250k to
$400,000400k |
1.5% |
× |
$ |
00 |
= |
$ |
00 |
| $400,000400k to
$2,000,0002.00m |
2.0% |
× |
$ |
00 |
= |
$ |
00 |
| Over $2,000,0002.00m |
2.5% |
× |
$ |
00 |
= |
$ |
00 |
| Total Tax |
|
|
|
|
|
$ |
250250 |
Starting January 1, 2017, Ontario offers a land transfer tax refund of up to $4,000 for
first-time home
buyers. Since your provincial tax exceeds the rebate limit, your provincial rebate is capped
at
$4,000.
Municipal Land Transfer Tax
Toronto is the only city in Ontario that levies a municipal land transfer tax. According to
your
selections, municipal land transfer tax does not apply to you.
Frequently Asked Questions
Am I a first-time home-buyer?
To qualify as a first-time home buyer, you must meet all of the following
criteria:
- You must be at least 18 years of age.
- You must be a Canadian citizen or permanent resident.
- You must occupy the property as your principal residence within nine months of purchase.
- You cannot have owned a home, anywhere in the world, at any time.
- Your spouse/common-law partner cannot have owned a home while they were your partner.
How do I claim a rebate?
You may obtain an
immediate
refund at the time of registration.
- If you are registering electronically, you must fill Statement 9028 and 9029 under the
Explanation tab
of the land transfer tax section.
- If you are filing on paper, you must submit an Ontario
Land
Transfer Tax Refund Affadavit at the Land Registry Office.
I did not claim a rebate at the time of registration. Am I still
eligible?
Yes, if you act quickly. You may claim your rebate at any point within 18 months of purchase.
Can I get a rebate if I am not a citizen or permanent resident of
Canada?
Yes, in certain cases. After the purchase of a property, you have an 18-month window
following
registration to obtain a rebate. If you gain citizenship or permanent residency during this
period, you
can claim the full rebate amount.
What is land speculation tax?
The Non-Resident Speculation Tax
(NRST), also
known as land speculation tax, is a 15% tax on residential property in areas near Toronto.
The tax only applies to individuals who are not citizens or permanent residents of Canada.
The specific
region involved is known as the Greater Golden Horseshoe region, shown below.
For more information, visit the official
government website.
RRSP Home Buyers’ Plan
Since March 19, 2019 (as part of Budget 2019), the Home Buyers’ Plan will allow
first-time
home buyers to withdraw up to $35,000 tax-free from their registered retirement savings plan
(RRSP) to buy
or build a home. The
amount must be repaid over a period of 15 years.
This is a recent increase over the current limit of $25,000, to take effect after the
approval of Budget
2019.
Do I qualify for the Home Buyers’ Plan?
You must meet the following
criteria to qualify for the Home Buyers’
Plan:
- You must be a resident of Canada at the time of withdrawal.
- You must be the owner of the RRSP(s) from which the withdrawals are made.
- Your RRSP contributions must have stayed in the RRSP for at least 90 days before
withdrawal.
- Neither you nor your spouse/common-law partner can have owned the relevant home for more
than 30 days.
- Neither you nor your spouse/common-law partner can have owned another home in the last
four years.
If you have a disability, the last requirement is waived. Additional
requirements may apply in special cases.
Is the withdrawal limit per person or per household?
The withdrawal limit is per-person. Each spouse/common-law partner has their own, separate
withdrawal
limit. If you are married or in a common-law relationship, you can therefore withdraw a
total of $70,000.
Note that only the person registered as the owner of an RRSP can withdraw from it under the
program. Each
spouse will need to have their own RRSP account to take advantage of the increased limit.
How do I make a withdrawal?
You must submit a Form T1036
to your financial institution for each withdrawal you wish to make.
How many withdrawals can I make?
You can make an unlimited number of withdrawals within one calendar year up to a total of
$35,000.
Withdrawals made during January of the following year are also tax-exempt.
When do I need to repay my withdrawals?
You have up to 15 years to repay the amount withdrawn to your RRSP. Repayments start the
calendar year
after the withdrawal is made. Each year, the Canada Revenue Agency (CRA) will send you a
Home Buyers’ Plan
statement of account
listing your remaining balance and minimum payment.
If you make more than your minimum payment, your later minimum payments will be reduced. You
may repay
the full loan amount at any time without penalty.
How do I make a repayment?
To make a repayment under the Home Buyers’ Plan (HBP), you need to make a contribution to
your RRSP and
designate a portion of the contribution as an HBP repayment. You may make this designation
on line 246 of
Schedule 7
when filing your next tax return.
Examples
Jessica and her husband want to buy a home in Toronto for
$900,000, but only have $80,000
saved for a down payment. Assuming an interest rate of 3%, their
monthly payment would
normally be $4,036 per month.*
Jessica and her husband each withdraw $35,000 from their own RRSP
account. In total, they
make a down payment of $150,000, lowering their monthly mortgage
payment to $3,649. That’s a
savings of $387 per month, or
$116,000 over the lifetime of their mortgage.
To repay the loan, they will need to make an annual payment of
$4,667 for 15 years. No
interest or tax is charged on the RRSP withdrawal.
*Assuming a 5-year fixed term with 25-year amortization.
Nathan purchased a home five years ago with the help of the RRSP
Home Buyers’ Plan. He
withdrew the maximum of $35,000, and has made the minimum $2,333
annual payment each year.
This year, however, Nathan can only afford to make a payment of
$1,000. The missing $1,333
is filed as taxable income on his next return. Since his
remaining balance is now larger
than planned, his minimum payment
increases to $2,481 starting next year. No other fees or
penalties are charged.
