Renting or Buying a Home? The Tax Implications You Need To Know

Tax advantages of buying a house

Canadians often ask if they should rent or buy a house. The answer will depend on numerous factors, such as affordability, the type of property, and your ideal neighbourhood.

Fortunately, the federal government has introduced options that may make homeownership more accessible for Canadians. We’ve provided some possible tax benefits and the latest news concerning new homeownership below.

30-Year mortgages

The new 30-year amortization on mortgages was introduced to first-time homebuyers and buyers of new builds (up from 25 years) as of August 1, 2024, and was later expanded to cover all first-time homebuyers (regardless of whether the home is new or existing) and all buyers of new builds (regardless of whether they are a first-time buyer or not). This extended amortization period aims to make payments more affordable for Canadians.

Home Buyer’s Plan (HBP)

As of April 16, 2024, the government raised the Home Buyers’ Plan (HBP) withdrawal limit from $35,000 to $60,000 through a Registered Retirement Savings Plan (RRSP).

In addition, withdrawals made from the RRSP to buy a home under the HBP between January 1, 2022, and December 31, 2025, now have a grace period before starting the 15-year repayment period. Repayments would start in the fifth year (instead of the second year) based on the year when the first withdrawal was made.

First-Time Home Buyers' Tax Credit (HBTC)

Since 2022 and for subsequent taxation years, the federal budget increased the amount used to calculate the new home buyer tax credit to $10,000, providing a tax credit of up to $1,500 to eligible home buyers. The current rate is 15% of $5,000, which equals $750.

GST/HST new housing rebate

If you paid Goods and Services Tax (GST) or Harmonized Sales Tax (HST) on a newly built or substantially renovated home in Ontario, you may qualify to receive a new housing rebate on part of the tax. 

Multigenerational Home Renovation Tax Credit (MHRTC)

You may be eligible for up to $7,500 in support for building a secondary suite for a family member who is a senior or an adult with a disability through the MHRTC. For example, if your parents or grandparents are moving with you into the new home, this tax credit could help cover the costs. 

Property tax benefits

Residents in these 3 provinces can benefit from property tax credits:

• The Ontario Energy and Property Tax Credit (OEPTC) assists low-to-middle-income residents with the sales tax on energy and property taxes. The monthly payments are issued as part of the Ontario Trillium Benefit (OTB).
• The Manitoba Education Property Tax Credit (EPTC) provides up to $350 to help cover the costs of the school taxes you pay through your municipal property tax statement or income tax return.
• The Quebec Solidarity Tax Credit applies if you can prove that you (or your spouse) was the owner, tenant, or subtenant of an eligible dwelling. If so, you may be able to claim the housing component of this tax credit.

Other home buying considerations

While there are numerous tax benefits you can take advantage of, there are other considerations to be aware of.

Mortgage interest deduction and rental expenses

You can deduct a portion of the mortgage interest if you're using your home for self-employment or business purposes. This is a good benefit if you have a side hustle or you're a freelancer.

Alternatively, if you want to earn rental income on your primary residence, you may consider renting out a room or two, or convert the basement to a separate unit. As such, a portion of the shared costs are tax deductible.

Further down the road, you may own a rental property. As a landlord, you’ll likely pay interest on the money you borrow to purchase or renovate your rental property. Fortunately, the mortgage interest tax deduction helps reduce the taxable rental income. What's more, you can claim expenses for advertising fees, property taxes, insurance, and Capital Cost Allowance (CCA) as a deduction on any renovations to the rental property. Just keep in mind that being a landlord involves adhering to rules and regulations and securing permits and licences. Also note that different provinces have different rules. So make sure you're familiar with the rules governing your area before renting out your property.

Principal residence exemption

In Canada, all capital gains realized are subject to a 50% inclusion rate. This rule does not impact homeowners selling their primary residence, however. It only impacts homeowners with other properties, such as a rental property. Since the primary residence is exempt from this rule, you’ll have peace of mind that you can keep more of the profits in your pocket if you decide to sell your home.

Tax advantages of renting a house

Generally, it’s cheaper to rent than to buy a home in the same area. That’s because buying a home requires between 5% to 20% as a minimum down payment and comes with ongoing costs. So, renting could be a suitable option if you don’t have that amount saved yet or you haven’t been approved for a mortgage. Aside from that, we explore other tax implications of renting a home below.

Rent tax credits

If you're wondering whether you can claim rent on your taxes, there aren’t any tax deductions for rent payments. Fortunately, British Columbia, Ontario, Manitoba, and Quebec offer tax credits or benefits related to rent. 

• British Columbia offers a refundable renter's tax credit for individuals. You can receive up to $400 if your income is less than $63,000. The amount will be reduced if your income is between $63,000 to $83,000. If you earn more than $83,000, your tax credit will be zero.
• Manitoba offers the Residential Renters Tax Credit, which saves residents up to $525 annually when they pay rent on their principal residence. Manitobans can claim up to $43.75 monthly for every month they pay rent within the given tax year. 
• Ontario has the Ontario Trillium Benefit, which provides assistance to renters. The monthly benefit you receive will be based on your annual income, age, and the amount of rent you pay.
• Quebec provides the Solidarity Tax Credit to tenants who come from low-to-moderate income families. Depending eligibility, they may be able to claim the housing component of this tax credit.

Moving expenses for work or school

Moving expenses could be tax deductible when you move more than 40 kilometres away to attend school full-time, launch a new business, or take a new job. This includes moving company costs, hotel bills, and legal fees. 

Other renting considerations

Although there are several tax advantages as a renter, here are some other factors to consider.

Rent reporting to build your credit profile

You can now boost your credit score and have a credit history through rental payments. Equifax, a credit bureau, will track your monthly rent payments. This can be beneficial if you’re in your early 20s and starting to build your credit history. So, later on, if you decide to become a homeowner and require a mortgage, this will help you obtain one.

Lower costs associated with property maintenance

When renting, the landlord is usually responsible for covering the property's cost. Generally, renters don’t have to worry about major expenses such as roof repairs, unclogging gutters, or replacing lightbulbs.

Be sure to clarify these responsibilities before you sign your rental agreement. For example, if you rent a house, sometimes the landlord will ask the renter to take care of the lawn mowing and snow removal. Having upfront discussions will prevent future conflicts between you and the landlord.

Factors to consider when renting vs buying a house

Knowing the answer to whether it's better to rent or buy a house will depend on your financial situation, the tax implications, how long you plan to live in the home and the housing trends in your area.

Your individual financial situation

Knowing how much it will cost to own or rent a home will help you in your decision. So, creating a budget is a good exercise to figure out what you can afford. The following costs can impact whether you choose to rent or buy a property:

• the type of property and the neighbourhood
• closing costs such as land transfer tax and legal fees
• moving expenses 
• tenant or home insurance
• utilities
• maintenance fees
• property taxes

Additionally, your income (or household income) will determine your mortgage amount and the expected payments. The amount of savings will also play a role into what you can afford. If you do decide to purchase a home, remember that it's not liquid compared to other assets.

Short-term vs. long-term perspective

In the short term, renting may allow you the flexibility to live in a home for the time you need without worrying about selling the property after you move out. It can also give you time to “try it before you buy,” making it a low financial commitment. When it comes to tax implications, certain provinces provide a tax credit to renters. Plus, you can claim your moving expenses if it's for work or school.

In the long term, buying a home offers more stability as property is generally considered an asset that increases in value over time. You'll also be able to take advantage of tax credits when buying a house, such as the GST/HST new housing rebate. However, be sure to consider the hidden costs like ongoing maintenance and property taxes.

Since market demand changes throughout the year, you may want to seek the advice of a realtor or mortgage specialist to provide you with some insights into your local area.

Renting vs. buying: Which one is right for you?

Renting vs. buying a house is a personal choice that depends on your financial situation, tax implications, and the amount of responsibility you want to take on.

The federal and provincial governments offer a variety of tax credits to first-time home buyers to help them achieve homeownership. This includes the First-Time Home Buyers' Tax Credit (HBTC), Home Buyer's Plan (HBP), 30-year mortgages, and the GST/HST new housing rebate. For renters, certain provinces offer tax credits on rent payments. 

Looking beyond the tax impact, while homeownership can help increase your net worth, it also comes with the task of caring for your home. On the other hand, renting may be a good option if you don’t have the financial means to buy a home and want to build your credit history.

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