First-Time Home Buyer Programs and Incentives in Ontario

The programs an Ontario first-time buyer should know exist

There is no single first-time buyer program in Canada. There is a set of them, run by different governments, with different eligibility tests and different limits — and the limits change. Treat the list below as the set of things to ask your mortgage professional, your accountant and your real estate lawyer about.

Eligibility requirements differ between programs. Being considered a first-time home buyer for one program does not automatically mean you qualify for every other program. That single sentence prevents most of the disappointment Robin sees at closing.

• First Home Savings Account (FHSA) — a registered account for saving toward a first home.
• RRSP Home Buyers’ Plan (HBP) — an eligible withdrawal from your own RRSP, repayable.
• Ontario land transfer tax refund for first-time buyers.
• Toronto municipal land transfer tax rebate, for purchases inside the City of Toronto only.
• Federal Home Buyers’ Amount — a non-refundable credit claimed on your income tax return.
• First-Time Home Buyers’ GST/HST rebate on qualifying new homes.
• Extended amortization on an insured mortgage for eligible first-time buyers and new builds.

First Home Savings Account (FHSA)

The FHSA is one of the most useful tools available to Canadians saving for a first home, because it combines features of an RRSP and a TFSA. Contributions are generally deductible, which can reduce your taxable income in the year you contribute. If the money is later taken out as a qualifying withdrawal to buy your first home, that withdrawal is generally not taxed.

That combination is unusual and it is the whole point of the account: a deduction when the money goes in, and a tax-free qualifying withdrawal when it comes out. In between, the money can stay invested inside the account.

There are annual and lifetime contribution limits set by CRA, and there are carry-forward rules. Confirm the current figures before you plan around them.

Two eligible buyers can each hold their own FHSA

An FHSA belongs to an individual, not to a couple. If two eligible first-time buyers are purchasing together, each person may have their own account, and the household total is simply the two accounts plus any qualifying investment growth.

One planning point worth acting on early: your participation room begins after you open your first FHSA, subject to the program’s rules. Someone expecting to purchase in the next few years should be talking to a qualified financial or tax professional about opening one now rather than at the point they start viewing homes.

The RRSP Home Buyers’ Plan

The federal Home Buyers’ Plan allows an eligible buyer to withdraw money from their RRSP to buy or build a qualifying home without the eligible withdrawal being immediately taxed as ordinary RRSP income. There is a maximum withdrawal per eligible person, so two eligible purchasers buying together can each draw on their own RRSP.

The important distinction from the FHSA is that HBP money is borrowed from your future self. It has to be repaid to the RRSP under the plan’s repayment rules, and that obligation is real.

Can you use the FHSA and the Home Buyers’ Plan together?

Potentially, yes. An eligible buyer may use a qualifying FHSA withdrawal and an RRSP withdrawal under the Home Buyers’ Plan toward the same qualifying home, provided the requirements of both programs are satisfied.

For a couple who have used both programs to their limits, that can add up to a substantial down payment. But this is not a grant — the buyers must actually have saved the money, and they must meet every eligibility requirement for each program separately.

Home Buyers’ Plan repayment, and why the year of withdrawal matters

An HBP withdrawal generally has to be repaid to your RRSP over a set number of years. There has also been temporary repayment relief for certain recent participants, under which a qualifying participant’s repayment period begins later than the normal schedule.

Because those provisions have changed more than once, confirm the repayment schedule that applies to the year in which you actually make your withdrawal — not the schedule described in an article written a year or two earlier.

Ontario’s first-time buyer land transfer tax refund

When you buy property in Ontario you normally pay provincial land transfer tax at closing. Eligible first-time buyers may receive a refund of part of it, up to a maximum set by the province. Below a certain purchase price the refund effectively eliminates the provincial land transfer tax; above that price the refund stops growing and the maximum applies.

This is the rebate most Ontario buyers have heard about, and it is worth knowing that it caps out — it reduces your closing costs by a fixed maximum, it does not scale with the price of the home.

The Ontario eligibility rules, and why newcomers must read them carefully

Among other requirements, the purchaser generally must meet a minimum age, occupy the property as their principal residence within a set period after closing, never previously have owned an eligible home or an interest in one anywhere in the world, meet the applicable spouse-related ownership requirements, and meet Canadian citizenship or permanent-resident requirements including the applicable post-closing provisions.

The worldwide ownership test is the one that matters most here. Someone who owned a home in India, the United States, Dubai or anywhere else may not qualify for Ontario’s first-time buyer land transfer tax refund, even though a federal program may use a different definition entirely. Check each program separately.

Buying inside Toronto means two land transfer taxes — and two rebates

Toronto is different from most Ontario municipalities because a buyer there faces the Ontario land transfer tax and the Toronto municipal land transfer tax. That makes closing costs inside the City of Toronto materially higher than in a surrounding municipality at the same purchase price.

Eligible first-time buyers may qualify for a Toronto municipal land transfer tax rebate in addition to the provincial refund. Both are capped, and both have their own eligibility rules — but for a first-time buyer comparing Toronto with a neighbouring municipality, the combined relief is a real part of the comparison.

The Home Buyers’ Amount — the first-time buyer tax credit

After buying a qualifying home, an eligible buyer may be able to claim the federal Home Buyers’ Amount on their income tax return. It is a non-refundable credit, and the claim may be shared between eligible spouses or other eligible purchasers as long as the combined claim does not exceed the applicable limit.

Note what it is not: this is not money you receive at closing. It is claimed when you file your return for the year of purchase, so keep your purchase and closing documentation with your tax records.

The first-time buyer GST/HST rebate on new homes

This one matters most to buyers looking at pre-construction condos, new-build townhouses, new detached homes, certain substantially renovated homes and qualifying owner-built homes.

The federal First-Time Home Buyers’ GST/HST Rebate can return the GST or federal portion of HST on a qualifying new home up to a maximum federal rebate, with the benefit fully available below one price threshold, phased down across a band above it, and unavailable above the top of that band.

New-construction tax rules get complicated quickly, particularly where the builder’s pricing already assumes the rebate has been assigned to them. The Agreement of Purchase and Sale is where that is decided, so it should be reviewed by your lawyer before it is firm.

Ontario HST relief on new homes

Ontario may also provide relief relating to the provincial portion of HST on qualifying newly constructed or substantially renovated homes, under the province’s new-housing rebate rules, and Ontario has introduced enhanced relief for qualifying transactions during specified periods.

Eligibility here can turn on the agreement date, the construction date, the purchase price, whether the property is a principal residence, whether it is purchased from a builder or owner-built, first-time buyer status, and the closing or occupancy timing. Have your lawyer, your accountant and the builder confirm exactly how the rebate is being handled in your specific agreement.

Longer amortization on an insured mortgage

Mortgage rules themselves can provide an affordability benefit. Eligible first-time buyers using an insured mortgage can access a longer maximum amortization period than the standard insured term, subject to mortgage-insurance and lender requirements. A longer amortization reduces the required monthly payment.

There is a trade-off, and it is not a small one. A lower monthly payment does not mean a cheaper mortgage. Because the loan is repaid over a longer period, you may pay more total interest if you carry it to the end of the amortization. The right choice depends on cash flow, income stability, future plans and your overall financial goals — not on which number looks smaller on a rate sheet.

You do not necessarily have to wait for a 20 per cent down payment

For eligible insured mortgages, buyers may purchase with less than the threshold at which default insurance stops being required, subject to Canada’s minimum down payment rules and to mortgage qualification. That matters, because waiting several more years to save the larger down payment is not automatically the better strategy when prices, rent and your own circumstances are all moving during those years.

Putting less down generally means mortgage default insurance is required, and in Ontario the provincial sales tax on that premium is payable in cash at closing rather than being financed with the premium. Compare the two scenarios properly — smaller down payment plus insurance, against larger down payment and a smaller loan — instead of assuming one is automatically better.

The old First-Time Home Buyer Incentive is closed to new applications

Buyers still find articles discussing the federal First-Time Home Buyer Incentive, the shared-equity program in which the government took a position in the property. That program is no longer accepting new applications.

It is a useful example of why first-time buyer information found through old blog posts, videos or social media should always be checked against the current government source before you plan around it.

The biggest mistake: assuming every program uses the same definition

There is no single Canadian definition of a first-time home buyer. Ontario’s land transfer tax refund generally asks whether you have ever owned an eligible home anywhere in the world. Other federal programs can use a definition based partly on whether you lived in a home you or your spouse owned during a particular multi-year period.

So someone can genuinely qualify for one first-time buyer program and not another. This matters most for new immigrants, Canadians returning from overseas, divorced or separated buyers, buyers whose spouses previously owned property, people who owned property many years ago, and buyers who inherited an interest in a property. Never assume eligibility from the phrase alone.

Planning, one to two years out

The biggest savings usually come from planning before the purchase, not from negotiating during it. If you are a year or more away, this is the work:

• Open an FHSA if you are eligible, so your participation room starts.
• Build your down payment separately from your emergency savings.
• Review existing RRSP savings against the Home Buyers’ Plan rules.
• Improve your credit profile and reduce high-interest consumer debt.
• Avoid unnecessary new loans, particularly vehicle financing.
• Establish stable, documentable income.
• Understand your realistic mortgage qualification rather than guessing at it.

Planning, three to twelve months out

Closer in, the work becomes specific:

• Get a mortgage pre-approval.
• Review your FHSA balance and your RRSP or HBP eligibility.
• Estimate closing costs line by line.
• Decide your maximum comfortable monthly payment, not your maximum approval.
• Compare the standard and extended amortization scenarios.
• Determine whether you qualify for the provincial and, if applicable, Toronto land transfer tax relief.
• Set aside an emergency reserve that survives closing.

Before you make an offer

By the time you are writing an offer you should be able to state each of these numbers for the specific property in front of you:

• Purchase price, deposit, down payment and mortgage amount.
• Mortgage default insurance, if applicable, and the Ontario sales tax payable on that premium in cash.
• Land transfer tax, and the rebates you actually qualify for.
• Legal fees, title insurance and disbursements.
• Property tax adjustments, and condo fees if applicable.
• Home inspection and appraisal costs.
• Moving costs, utility setup and immediate repairs.
• The emergency savings still standing after all of the above.

Ways to save that have nothing to do with government programs

Government incentives are only part of the strategy. Before buying, improve your credit before you apply, pay down expensive credit card balances, avoid financing a vehicle immediately before mortgage approval, compare mortgage options rather than taking the first one offered, understand whether FHSA contributions can reduce your taxable income, and build your emergency fund separately from the down payment.

During the search, compare properties on total ownership cost rather than purchase price. Two homes priced close to each other can differ substantially once property taxes, condo fees, heating, electricity, water, insurance, commuting, maintenance and expected future repairs are included.

During negotiation, and depending on market conditions, the negotiable items may include price, closing date, included appliances, fixtures, repairs, seller credits where legally and contractually appropriate, and the conditions that protect you. The cheapest home is not necessarily the best deal — a well-maintained property needing modest immediate work can be a better purchase than a cheaper one needing major work.

New construction and resale qualify differently

A resale buyer is typically looking at the FHSA, the Home Buyers’ Plan, the Ontario land transfer tax refund, the Toronto municipal rebate where applicable, the Home Buyers’ Amount, and extended insured amortization where eligible.

A new-construction buyer may additionally be looking at the First-Time Home Buyers’ GST/HST rebate, Ontario new-housing HST rebates, builder incentives, extended deposit structures and other new-construction-specific programs. New construction agreements contain complex HST and rebate provisions, which is exactly why legal review of the agreement matters more on a new build than on a resale.

First-time buyer checklist

Before you buy your first Ontario home, work through these:

• Have I opened an FHSA, and do I know my contribution room?
• Do I have RRSP funds available, and do I qualify for the Home Buyers’ Plan?
• Have I checked whether I qualify as a first-time buyer under each individual program?
• Do I qualify for the Ontario land transfer tax refund?
• Am I buying in Toronto, and if so am I eligible for the municipal rebate?
• Do I understand how and when the Home Buyers’ Amount is claimed?
• If I am buying new construction, have I investigated the first-time buyer GST/HST rebate and the Ontario new-housing rebates?
• Have I compared the standard and extended amortization scenarios?
• Have I compared insured and uninsured mortgage scenarios?
• Have I budgeted closing costs line by line?
• Will I still have emergency savings after closing?
• Has my mortgage professional confirmed financing, and has my lawyer reviewed the legal and tax issues?

Robin’s perspective: start with the plan, not the house

One of the biggest mistakes Robin sees first-time buyers make is starting the journey by asking what houses they can buy. The better first question, in his view, is: how can I structure my finances so that I am in the strongest possible position when I find the right house?

Before the search seriously begins, Robin wants his first-time buyers to understand their mortgage qualification, down payment, FHSA, Home Buyers’ Plan, land transfer tax and rebates, closing costs and expected monthly ownership expenses. Money saved through good planning is worth exactly as much as money negotiated off the purchase price, and it is far more reliably available.

The objective is not simply to become a homeowner. The objective is to become a homeowner without putting yourself under unnecessary financial pressure after closing.

Common questions

Can a couple have two FHSAs? Yes. The FHSA is an individual account, so if both partners qualify, each can have their own.

Can I use my FHSA and my RRSP together to buy a house? Yes, subject to meeting the requirements of both programs, an eligible buyer can use a qualifying FHSA withdrawal and the Home Buyers’ Plan for the same qualifying property.

Is there a separate land transfer tax rebate in Toronto? Yes. Eligible first-time buyers purchasing inside the City of Toronto may qualify for a municipal rebate in addition to the provincial refund where eligible.

Can first-time buyers get an HST rebate on a new home? Potentially. The federal first-time buyer GST/HST rebate applies to eligible new homes, in full below one price threshold and phased out across a band above it.

I owned a house in India. Am I still a first-time buyer in Canada? Possibly for some programs but not others. Ontario’s land transfer tax refund generally disqualifies someone who has previously owned an eligible home, or an interest in one, anywhere in the world. Federal programs can define it differently, which is why eligibility must be checked program by program.

Do first-time buyer programs apply automatically? No. Some benefits are processed as part of closing, while others require applications, withdrawals or income tax claims. Speak with your mortgage professional, your accountant and your real estate lawyer about your specific eligibility.