Is Canada’s First Time Home-Buyers Tax Credit Worth the Paper It Is Printed on?

By Simon Natta • December 3rd, 2009

Among all the government actions taken in Canada to ease last year’s real estate depression, the tax credit was one of those most accentuated. Although, compared to the first time home-buyers tax credit granted by the US government, the Canadian one seems like a joke. Nevertheless who’s finding it amusing?
Before we can make a decision, we need to analyze the two. Proposed on a $5,000 deductible is the Tax Plan offered by Canada’s Federal government. Using the deductible and multiplying it by the lowest income tax rate, for a housing owner this will amount to less than $800 net if you haven’t owned a property within the previous four years.

In the USA the property value is the key to this plan as up to 10% of its value is used to calculate the tax credit. In Canada the amount is removed from the tax base though in the USA it is deducted from income tax owing of the buyer. When the tax owing doesn’t top the maximum plan then the new property purchaser can look forward to the money being cashed back to them. If a US citizen wants to take advantage of this tax incentive then they can’t have owned a property in the preceding 3 years.

The Canadian and US property market recovery is down to very different things; in the US its down to these enormous tax incentives whilst in Canada it is regarded to be down to interest rate cuts. The American tax credit reduced the pressure of finding a down payment for a property and paved the way for first time buyers to get on the property ladder. Seeing the benefit of the US tax credit, the first thought is shouldn’t Canada be looking more carefully at these opportunities?

In the first instance, there is a question of necessity. There has been a totally different reaction when you examine the recession in both Canada and the USA. While falling prices, lost jobs and a surge of inventory drove many Americans right into short sales or foreclosures, the Canadian market bounced back within a few months, with any impact hitting investors and real estate agents more than usual homeowners.

Next we need to examine public funds and debts. Billions of dollars in lost tax revenue doesn’t support the already struggling budget shortage when 1.5 million taxpayers are claiming this tax credit.

To study the rest, please follow our original article “Is the First Time Home-Buyers Tax Credit Really as Good as It Sounds?” Thank you.

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