From big cities to small towns, the cost of owning a home continues to rise. Young people are finding it more and more difficult to imagine buying a one- bedroom condo—to say nothing of a three-bedroom house. Many of those who’ve been saving for years are being pushed further and further away from where they work in order to find something they can afford.
To help address this, Budget 2022 is proposing a series of new measures to support first-time home buyers and help make the path to ownership a reality for renters.
A Tax-Free First Home Savings Account
As home prices climb, so too does the cost of a down payment. This represents a major barrier for many looking to own a home—especially young people. To help Canadians save for their first home:
- Budget 2022 proposes to introduce the Tax-Free First Home Savings Account that would give prospective first-time home buyers the ability to save up to $40,000. Like an RRSP, contributions would be tax-deductible, and withdrawals to purchase a first home—including investment income— would be non-taxable, like a TFSA. Tax-free in, tax-free out.
The government intends to work with financial institutions to ensure that a Tax- Free First Home Savings Account could be opened and contributed to in 2023.
It is estimated that the Tax-Free First Home Savings Account would provide $725 million in support over five years.
Matthew and Taryn are aspiring homeowners living together. Starting in 2023, they each save $8,000 per year (the annual maximum) in their Tax-Free First Home Savings Account and are able to deduct this from their income. They both make between $50,000 and $100,000, and the Tax-Free First Home Savings Account allows them each to receive an annual federal tax refund of $1,640.
Matthew and Taryn have a combined $90,000 (including tax-free investment income) in their Tax-Free First Home Savings Account at the end of 2027, when they finally find their ideal first home.
By using the Tax-Free First Home Savings Account, Matthew and Taryn are finally able to afford a down payment to buy their first home. They can withdraw their down payment tax-free, saving thousands of dollars that can be put towards their new home. In addition, they will claim the doubled First- Time Home Buyers’ Tax Credit, providing an additional $1,500 in tax relief.
Doubling the First-Time Home Buyers’ Tax Credit
The government recognizes that the significant closing costs associated with purchasing a home can be a hurdle for first-time home buyers, and the First-Time Home Buyers’ Tax Credit is intended to provide support to Canadians buying their first home whether it be in a rural, suburban, or urban community.
- Budget 2022 proposes to double the First-Time Home Buyers’ Tax Credit amount to $10,000. The enhanced credit would provide up to $1,500 in direct support to home buyers.
This measure would apply to homes purchased on or after January 1, 2022.
An Extended and More Flexible First-Time Home Buyer Incentive
To make it more affordable for people to buy their first home, the federal government introduced the First-Time Home Buyer Incentive, which allows eligible first-time home buyers to lower their borrowing costs by sharing the cost of buying a home with the government.
- To help more Canadians purchase their first home, Budget 2022 announces an extension of the First-Time Home Buyer Incentive to March 31, 2025, and that the government is exploring options to make the program more flexible and responsive to the needs of first-time home buyers, including single-led households.
Supporting Rent-to-Own Projects
Many Canadians rent because they value the flexibility that comes with it. Others rent before they plan to buy their own home, but for those working towards ownership, rising home prices are pushing down payments further out of reach. Rent-to-own arrangements can help alleviate that barrier by providing more time and support to renters on the path to homeownership, and by allowing them to live and grow in their homes.
- To help develop and scale up rent-to-own projects across Canada, Budget 2022 proposes to provide $200 million in dedicated support under the existing Affordable Housing Innovation Fund. This will include $100 million to support non-profits, co-ops, developers, and rent-to-own companies building new rent-to-own units.
This investment will provide opportunities for Canadians to get on the path to homeownership earlier, while also encouraging new housing supply that supports affordability for renters and prospective homeowners.
Examples of eligible projects, which must include safeguards and robust consumer protections, could include the repair and renewal of housing for rent- to-own purposes, innovative financing models, and programming that assists rent-to-own participants in preparing for homeownership.
Source: https://budget.gc.ca/2022/report-rapport/chap1-en.html#2022-1