There are two benefits that you can take advantage of as a first time home buyer in the GTA.
First off, the true definition of a first time homebuyer is someone who has never been on title of a residential property or someone who has not been on title in the last four years.
1. The first benefit is the ability to use your hard earned RRSP savings as down payment towards your home. You can use up to $25,000 max per person or up to $50,000 maximum for a couple from your RRSP as down payment toward your first home tax free. You do however have to put it back into your RRSP or else you will have to pay tax. The government gives you two years grace and then you have 15 years to put the money back into your RRSP savings.
As an example – let’s say you withdraw $20,000 from your RRSP savings for your first home in the middle of the year. For the next two tax years – the current one and the year after, you would have nothing to do. The year after that however, you would have to put back at least 1/15 of what your took out so in this case $1,333.33 would be your minimum put back or else you will owe taxes on that amount.
An excellent tax strategy that I recommend to my clients is to take the down payment money that is just in a savings account – put this money into an RRSP (provided they have the contribution room) at least 90 days before their purchase – that way they will get a large return come tax time that can be used to pay off their mortgage faster!
2. As a first time home buyer you will avoid the double land transfer tax. If you are a first time homebuyer and you really want to live in Metropolitan Toronto – a big benefit as a first time homebuyer is that you will avoid virtually all of the municipal land transfer tax. A good strategy is to first buy in the city of Toronto and then for the next home you purchase buy somewhere outside of Toronto to avoid this costly tax. There is talk at this point for other municipalities such as the city of Mississauga to implement this double land transfer tax – but at this point only Toronto has brought in this extra cost to home ownership.
By Dion Mahadeo – Mortgage Specialist at RBC Royal Bank