2019 federal budget – changes affecting new home buyers
The 2019 federal budget was tabled on March 19, 2019, by Liberal Finance Minister Bill Morneau. The following is a summary of the budget’s proposed changes affecting new home buyers.
The Home Buyer’s Plan (“HBP”) allows first-time home buyers to withdraw amounts from their Registered Retirement Savings Plan to help with costs associated with purchasing their first home. The withdrawal limit on the HBP has increased to $35,000 from $25,000, and this increased limit will apply to withdrawals made after March 19, 2019. Any amounts withdrawn as a part of the HBP must be repaid over a 15-year period or included in the individual’s income if not repaid. The increase will allow couples who are first time home buyers to potentially withdraw $70,000 combined ($35,000 each) under the increased HBP to help fund the purchase of their first home.
The HBP will also be expanded to include individuals who are not first-time home buyers but are experiencing a breakdown of their marriage or common-law partnership, which will be effective for withdrawals made after 2019.
Taxpayers can also use the HBP to help purchase a more accessible home for an individual eligible for the disability tax credit, even if they do not qualify as first-time home buyers. The HBP amount will be modified to allow $35,000 withdrawals made after March 19, 2019 in these cases.
First-Time Home Buyer Incentive
The new First-Time Home Buyer Incentive (the “Incentive”) is a financing model that will allow eligible first-time home buyers to reduce their monthly mortgage payments without increasing their down payments through a shared equity mortgage with the Canada Mortgage and Housing Corporation (CMHC). The Incentive will offer funding (5% of the purchase price for existing homes or 10% of the purchase price for new-builds) and will provide first-time home buyers with greater flexibility to manage their costs. An eligible first-time home buyer would have the minimum down payment for an insured mortgage and a household income under $120,000 per year. The insured mortgage plus the Incentive amount cannot be greater than four times the participant’s annual household income.
The 2019 federal budget did not include any specific details regarding the repayment of the Incentive and only specified that no monthly payments would be required. The government plans to release more details later this year and expects the program to be in place by September 2019.
Change in Use Rules for Multi-Unit Residential Properties
Prior to the 2019 budget, if a taxpayer owned a multi-unit residential property (e.g. duplex) and began renting out a unit in which they had previously lived, or moved into a previously-rented unit, they would have a deemed disposition on the part of the property related to the change in use. The 2019 budget will allow taxpayers to elect that the deemed disposition not apply to the conversion of a multi-unit residential property from an income-producing property to a personal use property, or vice versa. The adjustment to the change in use rules will apply to changes in use after March 19, 2019.
Contact us today for more information on how these proposed changes from the 2019 federal budget may affect your personal tax situation.