Buying Your First Home? Here's What You Need to Know About Taxes

Buying a home is a major milestone. If you’ve saved for years to make it happen, just getting to this point is a huge achievement. You’ve likely budgeted for the big upfront costs, such as your down payment, legal fees, and closing costs.

But what many first-time home buyers don’t realize is that there can be unexpected tax implications.

The good news? If you’re buying a newly built home, a new federal rebate eliminates the Goods and Services Tax (GST) up to a certain price point, helping reduce upfront closing costs. And that's just one of several other programs and tax incentives available to first-time buyers of both resale and new homes.

Read on to learn about how these tax rebates and programs work, who qualifies, and how to take full advantage before moving day.

Understanding your taxes when buying a home for the first time

First things first. Buying a home, whether that’s a newly constructed home (new build) or a resale home, isn't just about paying a mortgage — it can also mean dealing with a few different types of taxes.

Here’s a quick overview of what you could expect, depending on where you live in Canada:

• Land transfer tax. This one-time tax, calculated as a percentage of the purchase price, is charged by most provinces when you purchase a home. Each province sets its own land transfer tax rates, as do some municipalities. Only Alberta, Saskatchewan, Nunavut, and Yukon don’t charge this tax (you’ll still pay a small transfer fee). First-time home buyers in several provinces may qualify for a land transfer tax rebate.

• Goods and Services Tax (GST) and Harmonized Sales Tax (HST). The GST is a tax that Canadians pay on most goods and services sold or provided in Canada. In certain provinces: Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, and Ontario, the GST has been combined with the provincial sales tax and is called the HST. In Canada, whether you pay GST or HST when buying a house depends on what type of property you're buying and where it is.

Looking at a new build versus a resale home, here’s what your taxes could look like:

Buying a new build

Buying a newly built home in Canada is treated like buying a new product or service. So, you’ll need to pay a sales tax on top of your purchase price, which consists of a federal portion (GST) and a provincial portion. But, depending on where you live, you may be eligible for a provincial rebate on the tax you pay.

Here's what that could look like in two different provinces on a home purchase of $800,000:

Example 1: Ontario (HST 13%)

$800,000 x 0.13 = $104,000

$104,000 + $800,000 = $904,000 (total cost before any tax rebates)

 

Example 2: Alberta (only GST 5%)

$800,000 x .05 = $40,000

$800,000 + $40,000 = $840,000 (total cost before any tax rebates)

Buying a resale home

What's good about buying a resale home is that it's viewed as a private sale of used property, so you usually don’t have to pay GST or HST.

But like many tax rules, there are some exceptions you should be aware of:

• The substantial renovation rule. If the home you’re buying has undergone what the Canada Revenue Agency (CRA) defines as a “substantial renovation,” then it may be treated as a new home and subject to GST/HST. A substantial renovation means that 90% (except the foundation, external walls, internal supporting walls, roof, floors, and staircase) has been removed or replaced. 

It’s being sold by a builder or investor. If the seller is a builder, developer, or real estate investor who built or substantially renovated the home, and never lived in the property, then the CRA views it as a new home, and GST or HST likely applies.

What is the new federal GST rebate for first-time home buyers?

• The Federal government rolled out new legislation that eliminates the 5% GST from the purchase of eligible new builds for first-time homebuyers. Here’s how it works:

  • If you’re buying a new build priced at $1 million or less, you could be eligible for a full GST rebate.
  • For new builds priced between $1 million and $1.5 million, there’s still some good news — you might qualify for a partial GST rebate of 50%, up to a maximum of $25,000.

  To be eligible, you must be a first-time homebuyer, the home must be your primary residence, and the home must meet the criteria of a qualifying purchase.

  Types of eligible new builds include a detached or semi-detached single-unit home, duplex, condominium unit, townhouse, unit in a co-operative housing corporation, a mobile home, and a floating home.

  The rebate applies to agreements signed or construction that begins on or after May 27, 2025, and before 2031. The home must be substantially completed by 2036.

  Note that the rebate can only be claimed once per individual, and you can’t claim it if your spouse or common-law partner has already.

  Who qualifies as a first-time homebuyer?

  There are a few conditions that need to be met to qualify as a first-time home buyer for this rebate:

  • You must be at least 18 years old.
  • You must be a Canadian citizen or a permanent resident.
  • You (or your spouse/common-law partner) must not have lived in a home you owned in the current calendar year or the past 4 years.

   

Can a First Home Savings Account be used to buy a home?

The First Home Savings Account (FHSA) is a registered savings plan specifically designed to help first-time home buyers save and grow their down payment, tax-free. Here’s what you need to know:

Annual contribution limit. You can contribute up to $8,000 every year (can carry over to the next year), to a lifetime maximum of $40,000.

Tax benefits. Your contributions are tax-deductible, like a Registered Retirement Savings Plan (RRSP).

Types of investments you can hold in an FHSA. Like an RRSP, you can hold mutual funds, publicly traded securities, government and corporate bonds, and GICs to help your money grow.

Tax-free withdrawals. As long as the funds you withdraw are used for a qualifying home, the money (including any income or gains) is not taxable.

You can also combine your FHSA with your spouse’s FHSA, as long as you’re both first-time home buyers, for an even bigger down payment.

Other programs and tax incentives for first-time home buyers

To help offset some of the upfront costs of buying a home, here are a few other key programs and tax incentives that first-time home buyers should know about:

Home Buyers' Plan (HBP)

If you are eligible, the HBP allows you to withdraw up to $60,000 from your RRSP and use those funds to buy or build a home for yourself or a relative with a disability. This money is tax-free if you pay it back to your RRSP within 15 years.

First-Time Home Buyers’ Tax Credit (HBTC) 

Claim a non-refundable credit of $10,000 on your tax return during the tax year you purchase a home to help cover some of the costs associated with a first-time home purchase. The maximum tax credit you can receive is $1,500.

GST/HST new housing rebate

If you buy a new build, preconstruction, or make significant renovations to an existing home, you could get up to 36% of the GST or federal portion of the HST paid back, up to a maximum of $6,300.

Multigenerational Home Renovation Tax Credit

You can claim 15% of the value of renovations up to $50,000 if you're creating a secondary unit for a qualifying relative (65 years of age or older or at least 18 years old and qualifies for the Disability Tax Credit).

A real-life example: Meet Monique

Monique is 30 years old, a first-time home buyer, lives in Ontario and earns $100,000 a year. She is planning to buy a $600,000 newly built condo and has saved $8,000 in an FHSA + $35,000 in an RRSP. 

Let’s walk through how much cash she has available for a down payment and how much she’ll save in taxes using first-time buyer programs.

1. FHSA

• $8,000 (contribution) x 0.2965 (marginal tax rate) = $2,372 (tax refund from FSHA)

2. Home Buyers’ Plan (RRSP withdrawal)

• Monique has the maximum $35,000 available for her down payment
  
  

3. Home Buyers’ Tax Credit (HBTC)

• As a first-time home buyer, Monique is eligible for $1,500 in tax savings.

Summary

Total available for down payment:

$8,000 + $35,000 =$43,000

Total tax savings:

$2,372 (FHSA refund) + $750 (HBTC)= $3,122

By combining 3 government programs, Monique boosts her down payment to $43,000 and saves $3,122 in taxes, making her path to home ownership a little easier.

Do your research

Buying your first home is exciting, but make sure you know all your financial obligations, including taxes. Taking the time to understand what you’re eligible for in terms of rebates, credits, and programs can make a real difference to your bank account and help you feel confident as you step into homeownership.

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