Individual Tax Series: Home Buyers' Tax Credit: Everything You Need to Know

Rylan Kaliel
Jul 2
3 min read

Updated: Jul 8

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Purchasing a home is a significant financial commitment. The Canadian government offers the Home Buyers' Tax Credit (HBTC) to assist first-time homebuyers by reducing some of the financial burdens associated with buying a property. This blog provides a detailed explanation of the HBTC, covering eligibility criteria, how to claim it, the credit amount, and strategies for maximizing this tax benefit.

What is the Home Buyers' Tax Credit (HBTC)?

The HBTC is a non-refundable tax credit designed to help first-time homebuyers offset the costs associated with purchasing a home, including legal fees, land transfer taxes, and inspection expenses. This credit directly reduces the amount of federal tax you owe. See our Basic Personal Amount blog for more details on non-refundable tax credits.

Eligibility Criteria

To qualify for the HBTC, you must meet specific conditions:

You (or your spouse/common-law partner) must be purchasing a qualifying home for the first time.
You (and your spouse or common-law partner) have not owned a home in the four-year period preceding your purchase.

Individuals with disabilities who are eligible for the Disability Tax Credit (DTC) or purchasing a home for a related individual with a disability can also claim the HBTC even if it is not their first home purchase.

Please note, when only one spouse or common-law partner meets all of the conditions to apply for the first-time home buyer’s tax credit, only the spouse or common-law partner who qualifies for the credit can claim the HBTC.

Qualifying Home

A qualifying home is a home that is registered in your or your spouse or common-law partner’s name with the applicable land registration system and must be located in Canada. This includes existing homes and homes under construction. You must also intend that you, or a related person with a disability, will occupy the home as your principal residence no later than one year after it is acquired.

How Much Can You Claim?

The HBTC is calculated based on a fixed amount set by the government:

The maximum credit amount is $10,000 (for purchases in 2022 and later).
The actual tax savings equal 15% of the eligible credit amount, meaning the maximum federal tax reduction is $1,500.

This credit can be split between you and your spouse or common-law partner or any other eligible persons who jointly acquired the home. The total amount claimed by all eligible persons for the same home cannot be more than the credit amount of $10,000.

How to Claim the HBTC

Claiming the HBTC is straightforward:

Complete Line 31270 of your personal tax return (T1 Income Tax and Benefit Return).
Ensure you retain documentation related to your home purchase, such as the purchase agreement, legal documents, and any supporting receipts.

If purchasing with a spouse or common-law partner, either person can claim the full amount, or the credit can be split between both individuals.

Documentation Requirements

The CRA may request documentation supporting your claim. It's essential to retain:

Purchase agreements and contracts.
Lawyer or notary invoices.
Receipts for related home-buying expenses (inspections, fees).

Common Mistakes to Avoid

Common pitfalls include:

Incorrectly claiming the credit when not eligible as a first-time buyer.
Forgetting to keep proper documentation supporting your claim.
Incorrectly splitting the credit between spouses without careful consideration.

To avoid these issues:

Verify your eligibility carefully before claiming the credit.
Maintain clear and organized documentation of your home purchase.
Consult with a tax professional if uncertain about eligibility or credit splitting.

Strategic Tax Planning and Maximizing the HBTC

Strategic considerations to maximize the benefit include:

Planning home purchases to coincide with tax years strategically.
Clearly determining which spouse or partner claims the credit to optimize household taxes.
Utilizing other related benefits (e.g., Home Buyers’ Plan (HBP) withdrawals from RRSPs) in conjunction with HBTC.

Impact on Other Credits and Benefits

Claiming the HBTC does not generally impact other tax credits or benefits, but it can provide additional liquidity, freeing up funds for further investments or savings.

Summary

The Home Buyers' Tax Credit offers meaningful financial relief for first-time homebuyers in Canada. Understanding eligibility, accurately claiming the credit, maintaining proper documentation, and strategically planning can maximize this beneficial tax credit.

Stay tuned for our next blog, where we'll discuss student loan interest deductions and their impact on your tax savings.

KLV Accounting, a Calgary-based accounting firm, is here to help. Contact us today to enhance your financial strategy, minimize your taxes, and drive business success! For a free consultation, call us at 403-679-3772 or email us at info@klvaccounting.ca.