The rising inflation today is because of the low interest rates, global supply shortages, conflicts in Ukraine and people wanting to spend their money after being holed up from the pandemic. The housing budget was released by the government and we will point out which ones may be beneficial to you.
For brand new buyers there is now a Tax-Free First Home Savings Account (FHSA) that gets you a tax deduction for contributions, as with a registered retirement savings plan. With this, you benefit from a tax-free compounding inside the account and tax-free withdrawals to buy a home.
Now that this new account is introduced, it may be best to use the FHSA first, contribute the maximum amount of $40,000 and then move on to a TFSA. Take note that you cannot use both a FHSA and the federal Home Buyers’ Plan for the same home purchase. The difference is that a HBP allows you to withdraw up to $35,000 tax-free from an RRSP to buy a first home.
A competition among the financial firms has already begun in who will be introducing first-time home accounts and what investment options they offer. Let the games begin!
Here are some of the ones we want to highlight:
Tax-Free First Home Savings Account
First time home buyers will be able to save up to $40,000 in a new account. As with a RRSP, up to $8,000 a year max will be tax-deductible. Withdrawals will be tax-free including investment growth inside the account.
Doubling the First-time Home Buyers’ Tax Credit
First-time buyers that purchased a property on or after January 1, 2022 will be able to claim $10,000 which is up from the current $5,000. This doubles the max non-refundable tax rebate from $750 to $1,500.
Two-Year Ban on Foreign Buyers
Be careful with this one! The government has announced that there will be a two-year freeze on purchases of residential property by foreign individuals and entities. HOWEVER, the exceptions include recreational real estate and purchases by individuals who live in Canada, have work permits, and international students who are on track to become permanent residents.
Sales Tax on Assignment Sales
One of the biggest ways real estate investors gained a large profit was from buying pre construction condo units and selling it before it was finished. The sales tax did not apply if the buyer initially intended to live in the home but this created a loophole of dishonesty. Now all assignment sales are subject to sales taxes starting in May.