FIRST TIME HOME BUYER INCENTIVE: New Possibility

FIRST TIME HOME BUYER INCENTIVE: New Possibility

 

Budget 2019 proposed the new Canada Mortgage and Housing Corporation (CMHC) first-time home buyer incentive, which is a shared equity mortgage that would give eligible first-time home buyers the ability to lower their borrowing costs by sharing the cost of buying a home with CMHC. Funding of 5% of the home purchase price would be available, enhanced to 10% if the home is newly constructed. To be eligible, the following requirements must be met:

  • the individual must be a first-time home buyer and the household income must be under $120,000 per year;
  • the insured mortgage combined with the incentive cannot exceed four times the annual household income; and
  • the minimum down payment for an insured mortgage must be made.

 Regular repayments would not be required. Details of the ultimate repayment were not provided, although repayment when the home is sold was noted as an example in the Government documents. The Budget papers were also unclear on whether CMHC would share in appreciation, or any decline, in the house value, which is typically a feature of shared equity mortgages.

Many commentators are reporting that this would only assist on the purchase of homes valued at up to $480,000 (4 x $120,000). However, based on the details released thus far, it appears that it is not the house price, but rather the total mortgage that is limited to $480,000. For example, where a $25,000 down payment is paid (assuming 5% down), a house valued at approximately $500,000 could be purchased (assuming family income was just under $120,000, and the mortgage totalled $475,000).

 It is uncertain whether there will be a cap on the maximum deposit or house value. More details will be released later this year, with the program expected to be operational by September 2019.

The Budget also announced financing to work with the broader financial community to assist third party providers of shared equity mortgages in scaling up their business and to encourage new players to enter this market.

 

ACTION ITEM: Watch out for details of this new incentive to be released in the fall.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

HOME BUYER’S PLAN (HBP): Enhanced Possibilities

HOME BUYER’S PLAN (HBP): Enhanced Possibilities

 

The HBP allows first-time home buyers (special rules apply for those with a disability) to withdraw amounts from their RRSP to buy or build a home. Budget 2019 proposed to increase the HBP withdrawal limit to $35,000 from $25,000. As the HBP is avilable to each individual, a couple could access up to $70,000 to assist in a first-time home purchase. This increase is effective for withdrawals made after March 19, 2019.

Taxpayers are considered first-time home buyers if, in essence, they did not occupy a home that they or their current spouse or common-law partner owned in the last four years. Specifically, they could not have occupied the home in the period beginning on January 1 of the fourth year before the year the funds are withdrawn, and ending 31 days before the funds are withdrawn.

Funds must be repaid into the RRSP over a 15-year period. If no repayment is made for a year, the individual will have an income inclusion equivalent to the required repayment. However, this could still be advantageous as the tax on the withdrawal is at least deferred to later years.

Budget 2019 also proposed an expansion to the rules such that individuals who experience a breakdown of a marriage or common-law relationship may be eligible even if they do not meet the first-time home buyer requirement. This will allow access to the HBP for either a new home or acquiring the former spouse’s interest in the couple’s existing house. However, where an individual’s principal place of residence is a home owned and occupied by a new spouse or common-law partner, the individual will not receive access to the HBP.

 

ACTION ITEM: Consider whether an RRSP contribution should be made now in order to benefit from the tax deduction, while making equity available for a later home purchase. Funds withdrawn under the plan must be in the RRSP at least 90 days prior to the withdrawal.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

OLD AGE SECURITY (OAS) DEFERRAL: Opting Out Retroactively

OLD AGE SECURITY (OAS) DEFERRAL: Opting Out Retroactively

 

As of July 1, 2013, where receipt of OAS is delayed, the monthly pension is increased by a factor of 0.6% for each month deferred, to a maximum of 36% (60 months, commencing receipt at age 70). This option may be especially desirable for those whose OAS would be entirely clawed back due to high income. For 2019, every $1 of income in excess of $77,580 results in a $0.15 clawback. While it is best to do the analysis and make the decision appropriately from the outset, the following considers what happened when those opportunities were missed.

In a January 31, 2019 Federal Court case, at issue was whether an individual could apply for his OAS pension to be cancelled slightly more than one year after it had begun in order to benefit from the voluntary deferral option.

The individual applied for OAS on March 1, 2013. His first payment was received in February 2014, the month after he turned 65.

In April of 2015 he realized that his entire OAS pension for the previous year was lost due to high earnings, and also that recent changes allowed deferral of receipt in exchange for higher payments. As such, a request to cancel it was submitted.

An individual has the ability to cancel a pension within six months of the commencement (i.e. the first payment). There is no specific provision that allows for an extension to this time limit.

The taxpayer cited various reasons why the application was not made in time, primarily in connection with his argument that the Government did not provide timely notification of this new possibility. In particular, he noted that he did not receive the letter sent out to those eligible to begin receipt in 2013 which explained the changes. Also, no notification of the new option was included in the application form nor in the letter he received advising him that his application was accepted.

  

ACTION ITEM: Determine whether it is best to defer receiving OAS prior to applying. If an error has been made, consider whether it was due to error in government advice or administration.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Marsha MacLean Professional Corporation