$50,000 buys more than $40,000, especially when a residence falls in price
By Peter Simpson, Special to Westcoast HomesFebruary 7, 2009
”The best things in life are free. But you can keep ’em for the birds and bees. Now give me money, that’s what I want, that’s what I want.”
— Berry Gordy, Janie Bradford and Barrett Strong, Money (That’s What I Want), 1959
In the federal government’s recent budget, entitled Canada’s Economic Action Plan, was some carrot money for homeowners and first-time buyers.
Faced with rapidly rising home prices during the last few years, first-time home buyers had a devil of a time climbing onto the first rung of the property ladder. The financial barriers were worrisome to those who wanted to put down roots, perhaps start a family — my eldest daughter included.
That step towards homeownership has become a little easier. Prices and mortgage rates have dropped and inventory has expanded. So young folks can take care choosing a home that matches their needs, taking into account key considerations such as location, value and builder reputation.
First-time buyers who have squirrelled away cash in their registered retirement savings plans can now withdraw, tax free, up to $25,000 to purchase their first home.
Couples jointly purchasing a home may together withdraw $50,000. This $5,000 increase for individuals and $10,000 for couples is the first adjustment in the withdrawal limit since the plan rolled out in 1992. Nice, and about time.
Also, more relief for first-timers is offered in the form of a 15-per-cent tax credit to help defray closing costs such as legal fees, property transfer tax and other disbursements. This credit is applied on closing costs up to $5,000, which equates to a maximum tax savings of $750. Again, a winner.
Both those tax-adjustment components are laudatory and helpful, and they follow on the heels of the feds reducing the GST to five per cent last year, easing the load for buyers of new homes.
But the one budget disappointment for me is the government’s reluctance to adjust the GST rebate threshold on new homes, a fairness proposition the home building industry has advanced for years.
The threshold at which the GST new housing rebate begins to be phased out is $350,000, then disappears at $450,000, the level where buyers of new homes must remit a hefty $22,500 in GST.
Since the GST was introduced in 1991, Statistics Canada’s New House Price Index has increased by 55 per cent. Had the rebate thresholds been adjusted, as promised, to take into account this increase in value, the rebate thresholds would today be from $540,000 to $700,000, not from $350,000 to $450,000.
Anyway, I have commented on the current GST rebate system numerous times in the past, but I am like a dog with a bone. At least first-time buyers, who are an integral link in the purchase chain, now have more financial tools to assist them in the purchase of a home. And there are some extraordinary deals to be had on both new and resale homes at the moment.
Property rookies, should they still be looking for a home six weeks from now, might want to consider attending the 15th annual seminar for first-time home buyers, presented by the Greater Vancouver Home Builders’ Association on the evening of March 24.
The free seminar has been popular through the peaks and valleys of housing cycles over the years. Attracting more than 800 attendees, it is the largest seminar of its kind in North America.
With so much attention on real estate these days, there are many questions to be answered. A panel of industry experts will help prospective first-time buyers to complete their homework by investigating all available options and issues before they take that important first step into homeownership.
Corporate sponsors include Canada Mortgage & Housing Corporation, Genworth Financial Canada, Homeowner Protection Office, Shaw Cablesystems, Real Estate Board of Greater Vancouver, TD Canada Trust, The Province and The Vancouver Sun.
And here’s another nugget that can be mined from the federal budget by first-time buyers — all Canadian homeowners, actually. There is a time-sensitive Home Renovation Tax Credit available.
The 15-per-cent tax credit will apply to eligible home renovation expenditures for work performed, or goods acquired, before Feb. 1, 2010. The credit may be claimed on the portion of improvements exceeding $1,000, but not more than $10,000, meaning the maximum tax credit for a married couple is $1,350. However, unmarried individuals such as, say, sisters who share joint ownership of a home can each claim a tax credit.
Eligible work includes painting, finishing the basement, building a deck or fence, replacing kitchen cabinets, installing laminate flooring, and a host of other materials and contractor labour. Not eligible are such items as the purchase of tools, homeowner labour (without a business tax number), and maintenance contracts such as lawn care, furnace cleaning or snow removal.
Skilled tradespeople displaced by the slowdown in new home construction are exploring opportunities in home renovation, as B.C. homeowners are expected to spend $7 billion renovating and improving their homes this year. Home renovators can now hire the best of the available tradespeople, then take on projects they previously turned down due to the tight labour supply.
With so much money at play, opportunists will surely try to take unfair advantage as homeowners, eager to cash in on the tax credit, start discussing their home-improvement plans with contractors.
The underground economy is flourishing, particularly when folks are looking to save a few bucks these days. It is important that homeowners resist the temptation to participate in the cash-only economy. They expose themselves to significant emotional and financial distress if things go wrong.
Because homeowners will not be eligible for a tax credit without receipts for materials purchased or services performed, I am hopeful the renovation tax credit will discourage participation in the underground economy. That was a deftly calculated move by the Canada Revenue Agency.
Homeowners concerned about opportunistic contractors should visit gvhba.org to check out RenoMark, a program that helps homeowners differentiate the renovation pros from the schmoes. To remain in the program, RenoMark members must abide by a 10-condition code of conduct.
From time to time, problems between renovators and clients do occur, and although we do not offer a mediation service, we urge resolution of these issues through communication and compromise.
When it comes to homes, there is never a dull moment out here in Lotusland-by-the-Sea.
Peter Simpson is chief executive officer of the Greater Vancouver Home Builders’ Association.