The Ontario Home Ownership Savings Plan is a helpful method to save for first time home buyers on the purchase of a home and the bonus is that these savings also provide give you with a break on your taxes.
How It Works
If you earn under $40,000 per year or a combined income with your spouse of less than $80,000. You are entitled to a tax credit for contributions of up to $500 ($1,000 per couple). The credit is based on a maximum contribution of $2,000 per year, or $4,000 per couple. It is on a sliding scale that diminishes with increased income. Those that earn a combined income of $80,000 will not be eligible for the credit.
These tax credits are available for five consecutive years. Clearly, $2,500 in tax savings is nothing to sneeze at. Combine that with savings from an RRSP and you could realize a significant reduction in your tax payable. There are stipulations though. You must close the plan and use the funds to buy a house by the end of the seventh year. If you do not, all the OHOSP tax credits must be repaid with interest.
How To Qualify
In order to qualify for the Ontario home ownership savings plan tax credit, you must open a plan by December 31st. Plans are available at all major financial institutions and rates are competitive with other savings vehicles. You can only open one OHOSP, but you can switch institutions if you need to. If you are a couple, you must set up separate plans.
To qualify, you and your spouse must be over 18 years of age and Ontario residents. You cannot qualify for an OHOSP if you ever had one in the past, even if you bought a home only for rental income. The funds that you save must be applied to a home that meets the proper criteria. Eligible homes can be detached or semi-detached houses, townhouses, mobile homes with permanent foundations, condos, shares in a co-op housing unit or duplexes, triplexes or fourplexes. The home you wish to purchase must be in Ontario and be suitable for year-round living. You must also live in the home for at least 30 consecutive days within two years of the date of purchase.
Complete The Required Paperwork
When you decide on a home to buy, be sure to complete an “OHOSP Home Purchase Declaration” at least four weeks before the closing date of the sale. You can get this form from the institution where you have your OHOSP. The form will ask for contact information for your lawyer as the funds will be released to them to apply against the closing costs for the sale. If you choose not to use a lawyer, you must contact the Ministry of Finance to have the funds released.
Be sure to apply for a refund on your land transfer tax too. Also, first-time homebuyers of an eligible home may be eligible for a refund of all or part of the tax up to a maximum of $2,000. Lastly, check the Ontario Ministry of Finance website for details here.
Take advantage of these money-saving measures to buy your dream home and save a few bucks in the process. After all, every dollar counts when you decide to make what may be the biggest purchase of your life.
Have a question about how the Ontario Home Ownership Savings Plan works? Contact one of our mortgage professionals to discuss this program.