Recent news stories show that even with the housing market correction that has happened in Canada, we are in a spot where homeownership remains a pipe dream for many young Canadians. The difficulties faced by first-time home buyers create a real issue for the housing market in general. First-time buyers are an essential part of the housing market because they bring new money into the process. If you bought your first home and now are looking to upgrade, more often than not, historically, a new first-time buyer would purchase your ‘starter home’, allowing you to access the equity that had built up in your home to purchase your next home. The first-time buyers push every deal up the chain. Without that infusion of new buyers, the housing market can stagnate. This seems to be an issue that we are facing now because people who want to buy their first home are still facing home prices that make ownership difficult or even impossible for them to achieve. Generation Z and Millennials are not expected to see housing prices that compare favourably with the ratio of home prices to earnings that Generation X and the Baby Boomers were able to take advantage of. So, with these pain points for first-time home buyers in mind, I thought that it might be helpful to put together a list of incentives that are available for first-time home buyers to help them with planning if homeownership is a goal they dream of.
In This Article
- The First Home Savings Account
- The Home Buyers’ Plan – RRSP Withdrawals
- The First-Time Home Buyers Tax Credit
- Incentives for First-time Home Buyers in Ontario
- The Bottom Line For First-time Home Buyers
The First Home Savings Account
This is probably the best incentive available to potential first-time home buyers right now. The First Home Savings Account (FHSA) was introduced in 2023 as a way to allow people to save for their first home. The FHSA allows you to build up tax-free dollars that you can use to buy your first home within the guidelines set by the government. Some of the key points here are:
- You can contribute up to $8,000 a year to a lifetime maximum of $40,000
- Your contributions are tax-deductible, and growth is not taxed (similar to your RRSP)
- Qualifying withdrawals used to purchase your first home are tax-free, and there is no requirement to repay those withdrawals.
- There is no requirement for repayment
The key point here is the last one. With no requirement to repay the funds that you withdraw from your FHSA, it is truly a method of making a portion of the money that you use as a down payment for your first home tax-free. A few things that you need to remember with the FHSA are:
- You need to meet the guidelines for being a first-time homebuyer to be able to use this plan.
- There are time limits. Your FHSA can’t be open for more than 15 years, in the year you turn 71, or the year following your qualifying withdrawal from the plan.
But with the limits on how the plan runs included in your planning process, the FHSA is a powerful incentive available to first-time home buyers in Canada.
The Home Buyers’ Plan – RRSP Withdrawals
Since 1992, you have been allowed in Canada to make withdrawals from your RRSP under the Home Buyers Plan (HBP). When it launched, the limit for this withdrawal was $20,000. Over the years, that limit has increased, and as of 2024, it now stands at $60,000. What the HBP does is allow qualifying first-time buyers to access funds in their RRSP without triggering income tax on the withdrawals, as long as the qualifying criteria are met. You can find the overall HBP rules here. The highlights of this first-time home buyer incentive are:
- Withdraw up to $60,000 without triggering income tax
- You need to repay the money over 15 years
- The HBP can be combined with the FHSA
The biggest difference between an HBP withdrawal and an FHSA withdrawal is the repayment rules. For the FHSA, you never have to repay the money that you withdraw. With the Home Buyers Plan, there are repayment rules. They are:
- For withdrawals under the HBP made between January 1, 2022 and December 31st 2028 the repayment rules state that you need to start making repayments in the fifth year after you make your withdrawal. So if you buy a home in July of 2026, no repayment is required until 2031. Previous rules were that you had to begin repaying the withdrawal in the second year after you made it. The relief offered by the five year waiting period is currently set to end in 2028.
- The repayment time frame is over 15 years.
- Repayments do not use up your RRSP contribution room.
- The repayment amount is 1/15th of your withdrawal each year. So if you took out the full $60,000, your repayment amount is $4000 a year for 15 years.
The HBP is not tax-free the same way that the First Home Savings Account is. If you do not repay the minimum amount in any given year, the difference between what you actually repay and the required repayment amount is added to your taxable income in that year. So, using the example of a $4000 repayment, if you only repaid $1000 you would be required to add $3000 to your taxable income that year.
The First-Time Home Buyers Tax Credit
Since 2009, there has been a tax credit available to first-time home buyers. Originally, this amount was a tax credit of up to $750 and was increased as of 2022. With the current tax rates charged by the federal government, the maximum tax credit available is $1400. The credit was designed to help first-time home buyers with costs such as closing costs, legal fees, and land transfer taxes. The rules for the HBTC can be found here. It is important to note that this is a non-refundable tax credit, so it reduces your tax payable, not your taxable income. A non-refundable tax-credit cannot be used if you do not have any tax payable, nor can it be used to get a refund if it is larger than your amount of tax owing. This means that if you qualify for $1400 on the tax-credit but only owe $1000 in taxes your tax bill disappears but you do not receive a refund of the $400 extra on the credit. Also, unlike the HBP and FHSA, this is a tax credit that is applied to your income taxes when you file them after your purchase; it does not provide you with funds to help make your down payment.
Incentives for First-time Home Buyers in Ontario
- The Land Transfer Tax Rebate: Depending on where you buy your first home, residents of Ontario are eligible to receive a provincial land-transfer tax rebate. The amount is typically around $4000 (more if you’re buying in Toronto), and the rebate is typically processed by your real estate lawyer and reduces or eliminates the amount of land transfer tax you need to pay at closing.
- The Ontario/Federal HST Rebate: In 2026, Ontario introduced temporary enhancements to the GST/HST rebates available on eligible newly constructed or substantially renovated homes. For homes purchased from a builder, qualifying agreements of purchase and sale generally must be signed between April 1, 2026, and March 31, 2027. Additional eligibility requirements and construction deadlines apply.
- The Ontario Enhanced New Housing Rebate covers the 8% portion of the HST (to a maximum of $80,000) for homes with a purchase price up to $1 million. For purchase prices of $1 Million to $1.5 Million there is a flat $80,000 provincial rebate. For homes with a price between $1.5 Million and $1.85 Million there is a partial, sliding scale rebate that gradually decreases and for homes purchased for more than $1.85 Million there is no enhanced rebate and they revert to the old limit of $24,000
- The Ontario New Home Affordability Payment covers up to $50,000 to match the 5% federal portion of the HST. There are many rules about this rebate that have to do with how it is claimed. How this rebate is calculated depends on your eligibility for other GST/HST rebates. Your realtor or mortgage broker can help you determine how the rules apply to your purchase.
If you purchase a new home that costs exactly $1 Million you are looking at potentially receiving $130,000 in rebates. How much you receive will depend on your actual purchase price and the eligibility of the property you are purchasing.
The Bottom Line For First-time Home Buyers
It is really hard for many people today not to feel like they are being hit from all directions. Housing costs have increased at a rate that far outpaces the rate at which people’s earnings have also increased. This has led to an affordability crisis when it comes to the idea of homeownership. There is help for those who seek it out, though. By having a plan in place that allows you to take advantage of as many of these homeownership buyer incentives as possible, you will receive as much help as you can on your journey to homeownership. If you are dreaming about owning your own home, then take the time to talk to the team at Strata Mortgages. They can help you determine what steps you need to take to help you on the path to buying your first home. Combined with their strategic partnership with Strata Wealth & Risk Management, they can set you up with someone who can help you take advantage of the first-time home buyer incentives to make your dream of buying your first home an achievable one. The first step to homeownership in a market like the one that exists right now is to build a strong plan. Take the time to talk to the experts who can help you build that plan; you won’t be sorry that you did.
