Wednesday, October 8, 2008

Help for first-time homebuyers

Modest, affordable help contrasts with opposition’s new tax

Prime Minister Stephen Harper Sept 16, 08 announced another step in the Conservative party’s economic plan to deliver practical help to hard-working families: if re-elected, a new Conservative Government will give first-time homebuyers a tax credit for up to $5,000 of the closing costs on the purchase of a new home.

Referring to the new tax credit, the Prime Minister remarked, “Our plan is simple, modest and practical. It’s a tax break for first-time homebuyers, and a boost to the construction industry. It will make home ownership more affordable, and it will help to create jobs.”

Many first-time homebuyers are surprised by the long list of closing costs, including land transfer taxes, inspection fees, appraisal fees, and legal fees. These can amount to between 1.5 per cent and 4 per cent of the purchase price. The tax credit will help first-time homebuyers to avoid stretching too far beyond their budget to meet these unexpected costs.

The Prime Minister noted that the tax credit on closing costs follows on previous measures to support Canadian families, including the cuts to the GST, the $100-per-month child-care benefit, the $2,000 tax credit for children under 18, and the newly-established Tax-Free Savings Account.

“In a time of rising-prices and global economic uncertainty, government should be doing what it can to protect our standard of living, for construction workers and their families, for first-time homebuyers, and for all Canadians,” said the Prime Minister.

“That’s our Conservative priority – not a new carbon tax.”

For young Canadian families and young adults, buying a home for the first time is a very significant milestone – it is a sign of success and financial stability and a means to increasing prosperity. But home prices are rising, and many first-time homebuyers do not anticipate the long list of closing costs. These added costs can force them to choose between stretching beyond their budget or postponing their dream of homeownership.

In 2007, nearly 300,000 Canadian individuals or families purchased a home for the first time.[1]
The average price of a home in Canada is expected to reach $337,000 by 2009, up more than 20 per cent since 2006.[2] Closing costs can amount to between 1.5 per cent and 4 per cent of the purchase price[3].

A new Conservative Government will phase in, over four years, a tax credit for first-time homebuyers for up to $5,000 of the closing costs on the purchase of a new home. This will reduce first-time homebuyers’ tax payable by 15 per cent of their eligible closing costs, up to $5,000.

A list of eligible closing costs will be drafted prior to implementation, following consultation with realtors, consumer groups, provinces and the Canada Mortgage and Housing Corporation (CMHC).

The list can be expected to include most, if not all, of the following[4]:
Estoppel certificate fee (for condominium/strata unit)
Home inspection fee
Land registration fee
Land transfer tax
Legal fees and disbursements
Mortgage broker's fee
Mortgage loan insurance premium
Prepaid property taxes
Utility bills adjustment
Property insurance
Survey or certificate of location cost
Title insurance

We estimate that when fully implemented this credit will save first-time homebuyers in Canada as much as $200-million per year.[5]

Certain provinces provide refunds on land transfer taxes to first-time homebuyers.[6] These refunded taxes will not count toward closing costs eligible for this credit. Only land transfer taxes paid above refundability limits will be eligible.

[1] Based on Canadian Real Estate Association / CMHC housing market statistics and a CMHC-estimated 42% housing market share for first-time homebuyers (from the 2007 Renovation and Homebuyers Survey)[2][3][4][5] Based on maximum tax reduction of $750 for 300,000 first-time homebuyers.[6] and

David Pylyp; Let's see if this gets passed into law.

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