Immigrating to Canada and purchasing Canadian real estate can be a headache for many buyers due to the high taxes. But did you know that the home you live in every day can also provide you with significant tax deductions? Read on to see if you have properly utilized the following property tax deduction items.
First-Time Home Buyer Tax Credit
(First-time home buyer’s tax credit)
If you are purchasing a home in Canada for the first time, you can claim a tax deduction of up to $750.
This new tax deduction has been in effect since 2009, and the calculation method for the deduction amount is: multiply $5,000 by the lowest personal income tax rate for that year (15% in 2009), and the resulting amount is the first-time home buyer tax credit for that year.
To qualify for this tax deduction, applicants must meet two conditions:
1. The property is purchased by you, your spouse, or common-law partner;
2. You have not lived in a property owned by you, your spouse, or common-law partner in the year of purchase and the previous four years.
The maximum tax deduction amount for one property cannot exceed $750.
Medical Expenses Tax Credit
(Medical expenses tax credit)
Some individuals with mobility issues may purchase medical equipment or devices to make their homes more accessible. These expenses can qualify for the Canadian medical expenses tax credit.
The Canadian government provides a detailed list of eligible medical equipment or devices for the tax credit, including sound amplifiers, infant respiratory monitors, and assistive devices for the blind or deaf, along with situations that do not qualify for the deduction.
New Housing Rebate
GST/HST tax rebate (new housing rebate)
If you purchase or build a new home, or make substantial renovations to an existing home, and the property price is below $450,000, you can apply for a new housing rebate.
Home Buyer’s Plan
(Home buyer’s plan)
Through the Home Buyer’s Plan, you can withdraw up to $25,000 from your Registered Retirement Savings Plan (RRSP) to help you purchase or build this home. However, remember that this money must be repaid.
If you wish to apply for this plan, you need to meet all the terms set forth by the plan, and if you are helping someone else apply, the person being helped must also meet the conditions.
To determine eligibility, refer to the CRA’s T1036 tax form.
Rental Income Tax Deduction
(Rental income)
If you rent out a property you own or use, you can fill out the T776 tax form to report your rental income and expenses, such as advertising, insurance, and interest on money borrowed to purchase or renovate the property, which can qualify for tax deductions.
However, it is important to distinguish between rental income and business income. If you rent out a property to others and only provide basic services, including heating, lighting, parking, or laundry facilities, the income you receive is considered rental income. If you provide additional services to tenants, such as cleaning, security, and food, you may be conducting a business.
The more services you provide, the more likely your rental activity is considered a business.
Capital Gains Tax Deduction on Sale of Property
Generally, sales tax does not apply to real estate transactions, but in some cases, you can apply for a sales tax deduction after selling a property. For example, if you built the house, you may have had to pay sales tax.
If the property you sold is not your primary residence, you need to report your capital gains to the government and pay taxes; if the property was your primary residence for at least two of the past five years, a portion of your capital gains is exempt from tax.
Additionally, for married taxpayers filing jointly, the exempt capital gains amount is $500,000; for single individuals, it is $250,000.
Furthermore, some moving expenses can also qualify for tax deductions.
BC Provincial Property Transfer Tax Exemption
If you are a resident of British Columbia and purchase a new property or a substantially renovated home, the purchase price is subject to sales tax, and buyers can apply for a refund of the provincial sales tax portion.
If builders paid sales tax when purchasing lumber and renovation materials during construction and renovation, those expenses can also qualify for a deduction.
Home Business Tax Deductions
With the advancement of technology, more people are choosing to work from home. If you work from home, some home business expenses can qualify for tax deductions, including heating, home insurance, electricity, and cleaning supplies. However, whether it is worth sacrificing the primary residence tax deduction for this should be carefully considered.
