- Monday, 11 April 2011 13:07
Not only can owning a home provide shelter and serve as an investment, it can also provide you with many avenues towards tax savings.
As such, CIBC is introducing a series of tax tips during the month of April intended to make homeowners aware of ways that they can be fully leveraging tax savings that are available to them.
"With spring in the air, house-hunting season is in full bloom," says Jamie Golombek, CIBC's tax and estate planning expert.
"Whether you're looking at buying your first home or you're already a homeowner, there are programs and strategies out there to help you manage your tax costs."
The ‘Home Sweet Home’ series “identifies three areas Canadians should look at when preparing their taxes this year: tax credits, repayments under the Home Buyers' Plan and how best to claim the sale of a vacation property.“
Golombek concentrates on three different areas: Tax Credits, making your mortgage interest tax deductible, and claiming the principal residence exemption when selling your home.
Available to first time homebuyers who have made a purchase after January 27, 2009, is a one-time, non refundable tax credit worth $750.
"For the purposes of this credit, you are considered a first-time home buyer if neither you nor your spouse or partner owned and lived in another home in the calendar year of purchase or any of the four preceding calendar years," says Mr. Golombek.
Other credits available to first time homebuyers include RRSP withdrawals up to $25,000 (HBP), and provincial property tax credits.
Golombek reminds homeowners as well that their interest on mortgage payments is tax deductible as well, and a possible strategy is to use non-registered funds to pay down mortgage debt.
This technique has been employed by many Canadians who own non-registered investments and are advised to liquidate these investments and use the proceeds to pay off their mortgage," notes Mr. Golombek. "The investor would then obtain a loan secured by the newly replenished equity in their home, and use the loan for earning investment income, thus making the interest on the loan fully tax-deductible."
Canadians who own multiple properties- and who sold one of them in 2010, may be eligible for the PRE (Principal Residence Exemption), depending on if the property sold is your main residence or not
According to CIBC, “ A principal residence can include either your main home or a vacation property, even if it's not where you primarily live during the year as long as you "ordinarily inhabit" it at some point during the year.”
"Generally, the decision to claim the PRE when you sell a property as opposed to "saving it" for the disposition of your other property will depend on a number of factors," says Mr. Golombek. "These include the average annual gain on each property; the potential for future increases or decreases in value of the unsold property; and the anticipated holding period of the unsold property."