First-time Home Buyers getting a break

With the cooling off of the housing market this year, the federal government confirmed this week that the introduction of the new Tax-Free First Home Savings Account will be launched on April 1.

The Account is a new registered plan to give prospective first-time home buyers the ability to save $40,000 on a tax-free basis.

“Over the past several years, as house prices have continued to climb, the cost of a down payment has become increasingly out of reach for far too many young people,” said the federal government in introducing Budget 2023.

The Account works like a Registered Retirement Savings Plan (RRSP) as contributions will be tax-deductible, and withdrawals to purchase a first home—including from investment income—will be non-taxable, like a Tax-Free Savings Account (TFSA). 

The federal government announced this week that financial institutions will be able to start offering the Tax-Free First Home Savings Account to Canadians as of April 1.

The federal government offered the following example of how practically the new Account would work:

Olivia and Amira want to buy a home. Starting April 1, 2023, they each save the maximum $8,000 per year in their Tax-Free First Home Savings Account, which they can deduct from their income at tax time. They both make between $70,000 and $100,000, and the Tax-Free First Home Savings Account allows them each to receive an annual federal tax refund of $1,640.

After four years of saving, Olivia and Amira have a combined $90,000, including tax-free investment income, in their Tax-Free First Home Savings Account, which they can use towards a down payment on their first home.

They can withdraw their down payment tax-free, saving thousands of dollars that can be put towards their new home. In addition, they will claim the First-Time Home Buyers’ Tax Credit, providing an additional $1,500 in tax relief.

In its Budget 2023, the federal government also announced plans for a Code of Conduct to protect Canadians with existing mortgages.

The government said elevated interest rates have made it harder for some Canadians to make their mortgage payments, particularly for those with variable rate mortgages. Canadians have the right to work with their mortgage lender to explore mortgage relief options that will help them stay in their home, it said.

“The federal government, through the Financial Consumer Agency of Canada, is publishing a guideline to protect Canadians with mortgages who are facing exceptional circumstances. Specifically, the government is taking steps to protect Canadians and ensure that federally regulated financial institutions provide Canadians with fair and equitable access to relief measures that are appropriate for the circumstances they are facing, including by extending amortizations, adjusting payment schedules, or authorizing lump-sum payments. Existing mortgage regulations may also allow lenders to provide a temporary mortgage amortization extension—even past 25 years,” added the government.

“This guideline will ensure that Canadians are treated fairly and have equitable access to relief, without facing unnecessary penalties, internal bank fees, or interest charges, which will help more Canadians afford the impact of elevated interest rates.”

The government is also working, it said, with provinces and territories on the development of a Home Buyers’ Bill of Rights, which will help level the playing field for young, middle class, and new Canadians by making the process of buying a home more open, transparent, and fair. The Home Buyers’ Bill of Rights could include ensuring the legal right to a home inspection, requiring that real estate agents disclose whether they are representing both sides of a potential sale, and ensuring transparency on the history of sale prices, added the government. 

The new Tax-Free First Home Savings Account is expected to boost home buying activity which has cooled this year across the country, particularly in Calgary as the city’s resale housing market is experiencing a significant decline in MLS sales compared to the record-breaking years of 2021 and 2022.

According to the Calgary Real Estate Board website, as of March 29, MLS sales were down in March more than 42 per cent from the same time last year. And year-to-date sales have decreased by close to 44 per cent.

(Mario Toneguzzi is a veteran of the media industry for more than 40 years and named in 2021 a Top Ten Business Journalist in the world and only Canadian)