Confused about the differences between these two?
While both can be helpful when you’re buying or building a home, only one is an actual tax credit. Here’s an outline of these two tax programs for first-time homebuyers and/or people with disabilities to make it easy for you to compare them.
The Home Buyers’ Amount
The Home Buyers’ Amount(HBA) is a non-refundable tax credit. If you or your spouse or common-law partner purchased a qualifying home in Canada in the previous year, you can claim a tax credit of up to $5,000, which will reduce the amount of federal tax you have to pay.
The catch is that you have to be a first-time home buyer, which the Canada Revenue Agency (CRA) defines as a person who has not lived in another home owned by you or your partner in the year of acquisition or in any of the four preceding years.
The home doesn’t have to be a single family house to qualify; you can still get the tax credit if you’ve bought a condo, townhouse, mobile home or even an apartment. Homes under construction also qualify.
And if you are eligible for the disability amount or you bought the home for someone related to you who is eligible for the disability amount, you don’t have to be a first-time home buyer. (You or the related person with a disability must occupy the home as your principal place of residence no later than one year after you’ve acquired it to claim the Home Buyers’ Amount, though.)
The Home Buyers’ Plan
The Home Buyers’ Plan, or HBP, is like a loan program for people with RRSPs. It doesn’t give you any credits like the HBA, on the contrary, you might end up paying more taxes if you don’t pay back the program.
Its purpose is to allow people to withdraw funds from their Registered Retirement Savings Plans to buy or build homes in Canada for themselves or for related persons with disabilities. The tax break consists of not having the RRSP withdrawals taxed as income.
If you qualify for the HBP, you can withdraw up to $35,000 in a calendar year from your RRSP. You will have to repay the withdrawn amount back to your RRSPs two years after the withdrawal. You will have 15 years to repay the amount on a yearly basis. You must contribute to your RRSP every year and allocate the contribution to pay the HBP. If you don’t allocate the payment, the amount will be added to your income and you will be taxed on it.
Like the Home Buyers’ Amount, you have to be a first-time home buyer to qualify, unless you are a person with a disability or are acquiring a home for a related person with a disability. And like the Home Buyer’s Amount, you have to occupy the qualifying home as your principal place of residence no later than one year after buying or building it.
If you have RRSPs, the Home Buyers’ Plan can provide real financial savings by reducing the size of your potential mortgage (and the amount of mortgage interest you’d have to pay). However, you cannot get a tax break from the HBP. If you don’t use your RRSPs, you can still get a substantial tax break thanks to the Home Buyers’ Amount.
TurboTax products will walk you through applying the credit for the HBA and the necessary steps to repay your HBP. Consider TurboTax Live Assist & Review if you need further guidance, and get unlimited help and advice as you do your taxes, plus a final review before you file. Or, choose TurboTax Live Full Service* and have one of our tax experts do your return from start to finish.
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