Budget 2024: What Does the Federal Government’s Housing Plan Mean to Home Buyers?

Buying or renting a house has become extremely expensive in Canada, making it almost impossible for the young generation to own one. Making housing affordable has been on the federal government’s agenda, and it also took some steps. But they were not enough. However, the Federal Budget 2024 has brought some pleasant news for first-time homebuyers on multiple fronts. In this article, we will discuss all the benefits homebuyers can avail themselves of when buying their first house.

Canada’s Housing Plan for First-Time Home Buyers

Canada’s Housing Plan aims to boost housing construction and affordability. The federal government is looking to boost construction by,

• Allocating some of its land for building homes
• Offering builders low-cost finance to build new apartment buildings and
• Speeding up modular housing, row housing, fourplexes, sixplexes and accessory dwelling units through pre-approved blueprints. 

The federal government offers financing and investment options for first-home buyers to boost affordability.

Investment: Higher Withdrawal Limit on RRSP’s Home Buyers’ Plan

From the investment perspective, the Registered Retirement Savings Plan (RRSP) has a Home Buyer’s Plan (HBP) that allows you to withdraw a maximum of $35,000 tax-free for the downpayment of your first home. In the 2024 budget, the government has increased the withdrawal amount under HBP from $35,000 to $60,000. This is an essential amendment given the significant cost of houses in the current environment.

You can deduct the RRSP contributions from your taxable income and grow your investments tax-free. When withdrawing to buy or build a home, the withdrawals are also tax-free.

In addition to the HBP, homebuyers can withdraw the entire amount from the first home savings account (FHSA) to pay for the first home. The FHSA has a contribution limit of up to $8,000 per year and a lifetime limit of $40,000.

Investment: Temporary Repayment Relief on RRSP’s Home Buyers’ Plan

HBP is like taking a zero-interest loan against your savings. You must repay the amount withdrawn under HBP over 15 years, with no repayment required in the first year. The 2024 federal budget also extended the HBP repayment period to five years for the first withdrawal between January 1, 2022, and December 31, 2025.

If you withdraw $60,000 in the HBP in 2024, your first year of repayment will be 2029. From 2029 onwards, you have 15 years to repay the HBP amount, which comes to an annual repayment of $4,000. If you choose to make a $5,000 prepayment before 2029, that amount will be deducted from your 15-year repayment period starting from 2029. Your annual repayment amount will come to $3,666.

To repay HBP, you make an RRSP contribution and designate all or a portion of the contribution towards repayment. You can do this by stating the amount on line 24600 of Schedule 7, RRSP, PRPP, SPP Contributions and Transfers, and HBP and LLP Activities. Attach this to your IT returns, and the CRA will send you an HBP statement of account stating details of the amount repaid, your HBP balance, and any additional prepayments you made.

Financing: Using Rental Payment History for a Good Credit Score

While RRSPs and FHSAs can help Canadians save for their first house, the average Canadian has to take a mortgage to buy a house. A good credit history can help them get better financing options. Budget 2024 will allow individuals to make their rental payment history count towards their credit score.

Tax Benefits to Boost Construction of Rental Property 

While the Budget 2024 introduced measures to assist first-time homebuyers, it imposed restrictions on investors buying Canadian homes for investment purposes. The federal government is considering taxing vacant lands in the residential zone areas. This could encourage landowners to construct a building.

To further encourage construction, the Federal government will allow those constructing purpose-built rental housing on or after April 16, 2024, and before January 1, 2031, to deduct their capital cost at an accelerated rate of 10% (instead of 4%) on the declining balance yearly. A higher depreciation expense will help you write off construction costs faster and reduce your tax bill significantly in the first few years. You might want to talk to a professional tax consultant to check your eligibility for this benefit.

The government also removes tax deductions for short-term rentals, making them less profitable. Hopefully, this would increase the supply of condos or create more long-term rental housing. 

Contact Hagar Liao CPA Professional Corporation in Mississauga and Oakville to Help You with Taxes on House Purchase

Whether you are a first-time home buyer or a property investor, talk to a professional tax consultant to plan your house purchase. A professional can help you avail of the various tax and other benefits introduced by the government. And if you are an investor, the consultant will help you make better tax-efficient investments. To learn more about how Hagar Liao CPA Professional Corporation can provide you with the best tax consulting, contact us online or by telephone at 289-803-1818.