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Larry wonders if he will lose his ability to use first-time home buyers’ programs if he rents out the townhouse he’s purchased before he lives in it.
Q. I would like to know whether it is better, financially speaking, to own my first house as an income property, or as my primary residence in Ontario. I am single, living with my parents, earn a steady income and have $80,000 in savings. I’ve already purchased a new-construction freehold townhouse for $320,000 (paid $30,000 in deposit), which will close in August 2020. While I had been planning to rent out this property, I’m wondering if it is better to treat it as my primary residence initially, to take advantage of all the benefits available to first-time home buyers (including the ability to borrow from my RRSP), then change to a rental later.
–Larry
Watch: Is an income property worth it?
A. I see where you are going with this, Larry. You’re wondering if you can take advantage of the Home Buyers’ Plan now—and, if you don’t, will the fact that your first home purchase is an income property prevent you from participating in any first-time home buyer programs when you do purchase your first primary residence in the future.
The short answers to your questions are:
Here is the definition of a first-time home buyer, taken from the CRA website:
“You are considered a first-time home buyer if, in the four-year period (prior to a home purchase), you did not occupy a home that you owned.”
In your case, you will not be living at the income property, it will not be considered your first home.
The second part to your question is about changing the use of the property from a primary residence to an income property sometime after the closing.
Although there is nothing on the CRA website indicating you can’t make the switch, the mortgage agreement you take with your lender may suggest otherwise.
When you negotiate a mortgage, the lender will want to know the purpose of the loan, and you, I hope, will want to be honest and let them know if it is for a primary residence or an income property; remember, a mortgage agreement is a legal document. There are different lending criteria for an income property versus a primary residence, as well—for example, you must have a 20% down payment for an income property.
Changing the use of the property also requires the completion of the CRA change of use form.
My suggestion is to make the purchase as an income property, as you originally planned, and save the home buyers’ programs for when you really do want to purchase your own principal residence. By the way, good job saving as much as you did. I’m sure it feels good.
Allan Norman is a Certified Financial Planner with Atlantis Financial Inc. and can be reached at www.atlantisfinancial.ca or [email protected]
This commentary is provided as a general source of information and is intended for Canadian residents only. Allan offers financial planning and insurance services through Atlantis Financial Inc.
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If I apply for a first time home buyer but later on i decided to rent it out what will happen can it will be taxable. or is there any requirements that you should stay at least 1 year out of 4 years ? or should you stay from the first year later on you decided to rent it out what will happen
Thanks for the question. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
I wanted to ask about the property transfer tax , what would happen if one bought the property as an income property. I heard i wouldnt qualify for the waiver on the property transfer tax, and that could cost up to $8000. Even if i buy a second property as a principal residence, would i be able to get the exemption on the property transfer tax.
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.