It will work a lot like a registered retirement savings plan (RRSP).
The federal government is introducing more support to reduce one of the biggest hurdles for young people trying to break into a tough real estate market: down payments. As part of the 2022 budget, first-time homebuyers can now qualify for a tax-free savings account and an increased tax credit to help cover the cost of a down payment.
Much like a registered retirement savings plan (RRSP), contributions to a Tax-Free First Home Savings Account (FHSA) are tax-deductible. Withdrawals from an FHSA that go toward a home purchase are non-taxable.
Starting in 2023, annual savings of $8,000 per person (up to $40,000 maximum) can go toward the purchase of a first home. Individual tax-free savings accounts can be combined for households investing in a property together.
Any Canadian resident who is 18 years old and up can qualify to open an FHSA, as long as they haven't owned a home in the prior four years.
My summary on the Tax-Free First Home Savings Account (FHSA) #Budget2022 (screen shot from Linkedin to get around twitter character limit restriction)pic.twitter.com/5dVRk9395s— Aaron Hector, R.F.P., CFP, TEP (@Aaron Hector, R.F.P., CFP, TEP) 1649367642
To help prospective buyers save up for a home, the government is also doubling the First-Time Home Buyers’ Tax Credit to $10,000. The credit provides up to $1,500 in direct support to home buyers and can apply to homes purchased on or after January 1 of this year.
Meanwhile, the First-Time Home Buyer Incentive allows eligible first-time homebuyers to lower borrowing costs by sharing them with the government.
The shared equity mortgage program allows buyers to borrow 5 or 10% of the purchase price of a home and then pay back the same percentage of the home's value when they sell (or within 25 years).
That means someone who gets a 10% incentive to buy a $200,000 home, or $20,000, will have to repay $15,000 if their home decreases in value to $150,000.
The budget changes aim to combat rising housing prices across the country. In Montreal, the average sale price for a home reached $583,295 last month, marking an 18% increase since last year and an all-time high.
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