Investing in real estate

Investing in real estate can be both rewarding and complicated. This issue of our newsletter deals with some of the tax relief programs that can be available to either first time home buyers or buyer of new homes.

When buying a new home or investment property, taxes can add as much as 17% to the cost. Ontario Land Transfer Tax and City of Toronto Land Transfer Tax can be as high as 2% of the value of the property – each. HST can be as high as 13% on the purchase of a newly constructed or renovated home. It is important that you utilize the programs available to reduce or even eliminate some of these costs.

The City of Toronto provides a rebate to qualified first time buyer up to a maximum amount of $3,725.00, being the tax on the value of a home in the amount of $400,000.00. In other words, a first time buyer buying a home for $400,000.00 (or less) is entitled to a full rebate of the City of Toronto Land Transfer Tax.

Ontario also has a program to rebate up to $ 2,000 of the Ontario Land Transfer Tax to first time buyers. Prior to December 14, 2007 the program only applied to the purchase of new homes, after that date rebates are available for resale homes as well.

The federal part of the HST, we will refer to it as the GST, has a Rebate Program for New Home Buyers. This program will refund 36% of the GST paid on the purchase of a new home where the purchase price of the property is not more than $ 350,000. The rebate for properties valued from $ 350,000 to $ 450,000 is reduced until it is eliminated for properties beyond $450,000 in value. This program will now also include investment property when rented for residential use.

Starting on July 1, 2010 the Ontario government will also be providing a similar program for individuals buying their primary residence or rental property. Effectively 75% of Ontario’s 8% shares of the HST on the first $ 400,000 of the purchase price will be available as part of this new rebate program.

One last program, while not a tax credit is of importance to new home buyers. Individuals who have not owned a home within 5 years are permitted to borrow up of $ 25,000 from their RSP to purchase their home. Couples can borrow $ 25,000 each for a total of $50,000. The funds must be paid back over the next 15 years.