Buying a home is one of the most significant financial decisions you’ll make in your life, and understanding how taxes play into the mortgage approval process is essential. Taxes can influence your ability to secure a mortgage and the benefits you receive, including how they may impact your mortgage rate. Here are the top 8 Canadian taxes to be aware of as you prepare to buy your home:

Goods and Services Tax (GST) / Harmonized Sales Tax (HST)

• What it is: The GST or HST is a federal sales tax added to the purchase price of new homes or substantial renovations.
• How it affects you: If you’re buying a newly built home, you’ll likely pay GST or HST. For first-time buyers, there are rebates available to help reduce this cost.
• Tip: Make sure to ask the seller if GST/HST is included in the price or if it’s extra.

Land Transfer Tax

• What it is: This tax is charged when you purchase a home and is based on the price of the property.
• How it affects you: Every province (and some municipalities) has different land transfer tax rates, so this will vary depending on where you’re buying. For first-time buyers, there are often rebates or exemptions to help lower this tax.
• Tip: Check with your provincial government to see if you qualify for any first-time homebuyer rebates. This can save you a significant amount on the upfront cost.

Municipal Property Taxes

• What it is: Property taxes are paid annually to your local municipality (city, town, or district) based on the value of your home.
• How it affects you: These taxes are separate from your mortgage payment but are important to consider as part of your homeownership costs. Lenders will also factor these taxes into your affordability calculations.
• Tip: Make sure to budget for property taxes in addition to your mortgage payments. Some mortgage lenders may offer to include property taxes in your monthly payment through an escrow account.

Capital Gains Tax (on Investment Properties)

• What it is: This tax is applied when you sell a property that has increased in value.
• How it affects you: As a first-time homebuyer, this typically won’t apply unless you’re buying a second property or investment property. For your primary residence, however, there is an exemption on capital gains tax, meaning you won’t pay taxes on any profit made from selling your primary home.
• Tip: If you plan to rent out part of your home or use it for investment purposes, consult with a tax advisor to ensure you understand how capital gains taxes might affect you when you sell.

Mortgage Default Insurance

• What it is: If you’re putting down less than 20% as a down payment, you’ll need mortgage default insurance. The amount of the down payment and the cost of the home determine how much insurance is required.
• How it affects you: This insurance protects your lender in case you default on the mortgage, and you’ll pay a premium as part of your mortgage. The premium is added to your mortgage amount and is paid off over time.
• Tip: If you can save for a larger down payment (20% or more), you can avoid this additional cost.

First-Time Homebuyer Tax Credit

• What it is: The federal government offers a tax credit for first-time homebuyers, helping to reduce the amount of taxes owed in the year you buy your home.
• How it affects you: If you qualify as a first-time buyer, you’ll receive a one-time tax credit that can be applied when you file your income tax return.
• Tip: When filing your taxes, be sure to claim this credit. It’s an easy way to get some money back after your home purchase.

Home Buyers’ Plan (HBP)

• What it is: A program that allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to help purchase or build a home, without paying tax on the withdrawal at the time it’s made, as long as certain conditions are met.
• How it affects you: The money you withdraw must be repaid to your RRSP over a period of 15 years. This can be a helpful way to increase your down payment without having to pay tax on the amount you withdraw.
• Tip: If you’re considering using the HBP, make sure you have enough time to repay the amount into your RRSP to avoid penalties.

Provincial or Municipal First-Time Homebuyer Rebates

• What it is: In addition to the federal tax credit, some provinces and municipalities offer rebates or exemptions for first-time homebuyers to help reduce the cost of land transfer taxes.
• How it affects you: These rebates can vary by location. In provinces like Ontario, British Columbia, and Quebec, first-time homebuyers may be eligible for significant savings.
• Tip: Check with your local government to see if you qualify for any provincial or municipal rebates, as they can significantly reduce your initial costs when purchasing your first home.