How the 2019 Budget Will Impact Home Buyers
Here is a summary of the 2019 pre-election budget and how it impacts home buyers and investors.
Modernizing the Home Buyers’ Plan
Currently, the plan allows first-time home owners to withdraw up to $25,000 from their RRSP to purchase or build a home, without paying withdrawal tax. The amount must be repaid over the next 15 years.
The budget proposes to increase that amount to $35,000. Furthermore, individuals who experience a breakdown in marriage or common-law partnership can participate in the plan, even if they do not meet the first-time requirement.
First Time Home Buyer Incentive
This incentive is a shared equity mortgage that would give first-time homebuyers the ability to lower their borrowing costs by sharing the cost with the Canada Mortgage and Housing Corporation.
The incentive would provide funding of 5% or 10% of the home purchase price. No ongoing monthly payments would be required - the incentive can be repaid upon selling the home for example.
Canada Training Credit
Every year, eligible workers between ages 25 and 64 would accumulate a credit of $250 per year, up to a lifetime limit of $5,000.
Starting in 2020, Canadians would be able to apply for up to half the cost of training fees at colleges, universities and eligible institutions providing occupation skills training.
Registered Disability Savings Plan Improvement
To open an RDSP, an individual must be eligible for the Disability Tax Credit (DTC). When a beneficiary no longer qualifies for the DTC, the RDSP rules can require that the plan be closed, and that grants and bonds be repaid to the Canadian Government.
To address concerns that this treatment does not appropriately recognize the financial impact that periods of severe, but episodic, disability can have on individuals, Budget 2019 proposes to eliminate the requirement to close an RDSP when a beneficiary no longer qualifies for the DTC. Doing so will allow grants and bonds that otherwise would be required to be repaid to the Government to remain in the RDSP.
Future Limits on Stock Option Deduction
The Government intends to limit the benefit of the employee stock option deduction for high-income individuals employed at large, long-established, mature firms. Specifically, the Government will be applying a $200,000 annual cap on employee stock option grants that may receive tax-preferred treatment.
Closing Tax Loop Holes
Budget 2019 seeks to make the tax system fairer by proposing to:
- Prevent the use by mutual fund trusts of a method of allocating capital gains or income to their redeeming unitholders where the use of that method inappropriately defers tax or converts fully taxable ordinary income into capital gains taxed at a lower rate.
- Improve existing rules meant to prevent taxpayers from using derivative transactions to convert fully taxable ordinary income into capital gains taxed at a lower rate.
- Stop the use of individual pension plans to avoid the prescribed transfer limits, which are meant to prevent inappropriate tax deferrals when individuals transfer assets out of certain types of pension plans.