Owning a home isn’t just about having a place to live. It can also come with tax advantages that help you save money. Here are some key tax benefits that homeowners in Canada should know about.
1. Principal residence exemption
If you sell your home for more than you paid for it, that profit is considered a capital gain. However, if the property was your principal residence for the entire time you owned it, you don’t have to pay capital gains tax on the profit. This exemption can save you thousands of dollars when you decide to sell. If you own multiple properties, you can only designate one as your principal residence per year.
2. Home buyers’ amount
First-time homebuyers can claim a $5,000 non-refundable tax credit, which results in a $750 tax reduction. To qualify, you must have purchased a qualifying home and not lived in another home that you or your spouse owned in the previous four years. This credit can help offset some of the costs associated with buying a home, such as legal fees and land transfer taxes.
3. Home buyers’ plan
If you’re buying your first home, you can withdraw up to $35,000 from your RRSP without paying taxes on the withdrawal. If you’re buying with a partner who also qualifies, you can each withdraw up to $35,000, giving you a combined $70,000. This money can be used for your down payment or other home-buying costs. You have 15 years to repay the amount to your RRSP, starting in the second year after the withdrawal. If you don’t repay the required amount each year, it will be considered taxable income.
4. First home savings account
The first home savings account (FHSA) is a new tax-free savings option for first-time buyers. You can contribute up to $8,000 per year, with a lifetime limit of $40,000. Contributions are tax-deductible, meaning they reduce your taxable income, similar to an RRSP. When you withdraw money to buy a home, it is completely tax-free. Unlike the home buyers’ plan, you don’t have to repay the withdrawn amount.
5. Home office deduction
If you work from home, you may be eligible to deduct certain expenses related to your home office. This includes a portion of your utilities, internet, maintenance costs, and even mortgage interest or rent. To qualify, you must use your home office for work more than 50 percent of the time or use it exclusively for business purposes. If you’re self-employed, you can claim additional deductions for expenses like property taxes and home insurance. The Canada Revenue Agency (CRA) has specific guidelines on how much you can claim, so it’s worth checking with an accountant.
Understanding these tax benefits can help you save money and make the most of homeownership. If you’re thinking about buying or selling, feel free to reach out—I’d be happy to help.
