Mortgage Basics

What is the FTHB Tax Credit in Canada?

What is the FTHB Tax Credit in Canada?
Written by
  • Alivia Massimillo
| 21 February 2023
Reviewed, 3 May 2024

Table of contents

    Purchasing a home is a significant milestone in anyone’s life. At the same time, it can also be an overwhelming experience, especially for those doing it for the first time. Luckily, the Canadian government offers tax breaks and other incredible financial incentives like the First-Time Home Buyers’ Tax Credit (FTHB) to help offset the exorbitant cost of buying a home in your favorite Canadian province.

    Key Takeaways: 

    • The FTHB Tax Credit is available to first-time home buyers in Canada

    • It helps offset the cost of buying a home, up $1,500 cumulatively. 

    • Eligible expenses include legal fees, land transfer taxes, and title insurance premiums

    What is the FTHB Tax Credit?

    The FTHB Tax Credit is a non-refundable tax credit available to Canadian residents who are buying a home for the first time. It is a policy adopted by the government to help reduce income taxes for new homeowners. 

    This first home buyer incentive was introduced in the 2009 federal budget and has since helped thousands of Canadians become homeowners. The goal is the credit is to assist first-time home buyers with the costs associated with buying a home, such as legal fees, disbursements, and land transfer taxes.

    In other words, the FTHB Tax Credit is like a warm, comforting hug from the government, letting you know they understand the financial stress of becoming a first-time homeowner. This tax credit helps to offset the costs of purchasing a home, making the process easier and less daunting. It’s like having a personal financial assistant who takes care of all the nitty-gritty details.

    If you’re obtaining a home for the first time, claiming the first-time homebuyer credit can land you a cumulative tax rebate of $1,500. While $1,500 may not seem big compared to your loan, every first-time home buyer would agree they need all the help they can get, making buying your first home much more accessible.

    How the First-Time Home Buyers’ Tax Credit works

    The FTHB Tax Credit is calculated based on the amount of money the buyer spent on the home purchase. The credit is 15% of the amount paid, up to a maximum of $750. 

    For example, if an individual spent $5,000 on legal fees and land transfer taxes, their FTHB Tax Credit would be $750, the maximum amount allowed.

    The $10,000 Home Buyer’s amount can be split with your husband/wife or common-law partner, but the total of your claims cannot be more than $10,000, according to the government. 

    Who Can Claim the First-Time Home Buyers’ Tax Credit?

    Eligibility is determined by a short list of standards by the Canada Revenue Agency (CRA). Potential buyers must meet the following criteria to be eligible for the FTHB Tax Credit;

    First-Time Homebuyer

    The individual must be a first-time homebuyer, meaning you cannot have owned or occupied a home owned by your spouse or common-law partner in the previous four years. In other words, you must have lived outside the bought home as the principal residence during the last four years.

    Shared Ownership

    Suppose you purchase the home with someone else, such as a spouse or common-law partner. In that case, you and your spouse or common-law partner must satisfy all the eligibility criteria and be first-time homebuyers.

    Canadian Resident

    To qualify for this tax rebate, you must be a resident of Canada and must have lived in the country for at least one year before the date of the home purchase. 

    Purchase Price

    The home must have a purchase price of less than $450,000, meaning the homebuyer’s amount spent on the home acquisition should be at most $450,000.

    If the home is located in a designated rural or northern area, the purchase price limit increases to $500,000.

    Income Requirements

    The individual making the purchase (you or your spouse or common-law partner) must have a total income for the year of less than $120,000, and you must acquire the home before the end of the calendar year.

    Primary Residential

    To be eligible for this program, you must purchase a home that would be used as your primary residence and must live in the home within one year of its purchase.

    Claim a Disability amount on Tax

    You may also qualify for the home buyers tax credit if you have helped a relative with a disability buy a home. 

    Helping a family member with a disability acquire a new home can qualify you for the Home Buyer Tax Credit if you successfully claim a disability amount the year you bought them the house. The affected or impaired individual would have to fill out Form T2201, Disability Tax Credit Certificate, and be confirmed by a doctor as having a severe and protracted impairment. 

    This policy applies even if you’re not a first-time home buyer. 

    Buy a qualifying home

    You can claim this tax credit on your tax return if you can acquire a qualifying home. Although the great majority of homes in Canada are eligible for the First-Time Home Buyers’ Tax Credit, there are a few restrictions to bear in mind. 

    How to Claim the FTHB Tax Credit? 

    If you are eligible for the FTHB tax credit, you can claim it when you file your federal income tax return. Here’s how to claim the FTHB tax credit:

    Claiming the First-Time Home Buyers’ Tax Credit is surprisingly straightforward. If you use software to file your taxes, such as Turbotax or Wealthsimple Tax, simply answer ‘yes’ when they ask if this is your first time purchasing a home. Alternatively, if you’re completing your taxes yourself, there’s just one line to fill in–for 2022 and subsequent years, it should be Line 31270 of Schedule 1 on the CRA tax form for the amount of $10,000 (or $5,000 up until 2021). Once this step is done, the CRA will take care of the rest for you. Filing for this tax credit couldn’t be easier!

    Other First-time Home Buyer Incentives

    There are other helpful resources by the Canadian government to help prospective buyers seamlessly leap on the bandwagon of homeownership in Canada. Even if you have earned the First-Time Home Buyers’ Tax Credit, you are still eligible to apply for several other grants and credits for first-time homeowners, such as:

    • Land Transfer Tax (LTT) Rebate: Some cities and municipalities offer a rebate to help first-time homebuyers offset the cost of their land transfer tax.
    • The Home Buyer’s Plan: First-time homebuyers can withdraw up to $60,000 from their Registered Retirement Savings Plan (RRSP) to buy a house for themselves or a relative with a disability. The Home Buyer’s Plan access to RRSP includes a tax-free benefit. And you must pay the loan back within 15 years.

    Frequently Asked Questions

    What is the difference between the FTHB Tax Credit and the Home Buyer’s Plan?

    The First-time Home Buyer Tax Credit is a non-refundable tax credit for Canadian residents who purchase a home for the first time. The tax credit provides a 15% federal tax credit for a maximum amount of $5,000, so a first-time home buyer can receive the full credit of $750. The credit can be claimed when the buyer files their tax return for the year they bought their home.

    On the other hand, the Home Buyer’s Plan is a government program that allows first-time home buyers to withdraw up to $60,000 from their Registered Retirement Savings Plan (RRSP) to purchase or build a home. The withdrawal must be repaid within 15 years, starting two years after the withdrawal. If the total amount is not repaid in a given year, it will be added to the home buyer’s income for that year and taxed accordingly.

    What if I’m buying a home with my spouse or friend?

    If you’re purchasing a home with a spouse or friend and one of you is a first-time home buyer, you may be eligible for the First-Time Home Buyer Tax Credit. If you and your spouse or friend are considered joint property owners, only one of you can claim the tax credit. It’s important to note that, to be deemed a first-time home buyer, neither you nor your spouse or friend can have owned a home you lived in as your principal residence in the previous four years. If either of you has previously possessed a house but not as a principal residence, you may still be eligible for the FTHB Tax Credit.

    If you’re purchasing a home with someone who is not a first-time home buyer, they would not be eligible for the FTHB Tax Credit. However, they may still be eligible to participate in the Home Buyer’s Plan (HBP). 

    Final Thoughts

    The FTHB Tax Credit is an excellent resource for first-time home buyers in Canada. It presents a valuable opportunity for first-time homebuyers to reduce the costs of purchasing a home. 

    If you are a first-time homebuyer, take advantage of this homebuyer credit and consult with a tax professional to ensure that you are eligible and claim the credit correctly.