Nov. 22, 2009

Canadian First Time Home-Buyers Tax Credit: Never a Humorous Matter


First Time Home-Buyers Tax Credit was one of the governments action incentives to help with the property decline. Unfortunately this incentive doesn't seem to be a blessing next to the USA tax plan, as well as coming off as a bit of a joke. So do we find it just one massive laugh?
First, let’s examine the two tax credits. The Canadian First-Time Homebuyer’s Tax Incentive, presented by the Federal government, is formed on a $5,000 deductible. Multiplied by the lowest income tax rate (15%), it tots up to a net $750 credit for anybody who intends to buy a housing unit in Canada and didn’t own property during the last four years.

On the other hand, the American tax incentive can be as big as 10% of the real estate's value, to a maximum of $8,000. In the US the incentive is taken from the buyer's income tax (owing) whereby in Canada it's deducted from the tax base. The tax credit incentive is cashed back to the new house owner if tax owed by them doesn't top the $8,000. Whereas in Canada a person can't have owned a house for the 4 years before, in the US this is only 3.

While the Canadian real estate market rebound is credited by specialists generally to the Bank of Canada interest rate cut, the (still quite shaky) recovery of the American market was indeed fueled by their gigantic tax credit. The American plan decreased the pressure of finding a down payment for a property and paved the way for first time buyers to get on the property ladder. The question of whether the Canadian economic action plan shouldn’t take the tax credit more intently comes normally, but the answer is more complicated.

In the first instance, there is a question of requirement. Whilst both Canada and the US have both been in recession there has been a marked difference in the consequences of it. The Canadian market bounced back within a few months with the main losers being housing investors and estate agents; but the Americans have seen the slump hit home owners with a flood of short sales and forclosures.

Looking at the fiscal situation we also see a difference. With around 1.5 million taxpayers claiming the aid, the US federal government has lost around $10 billion in tax revenues so far, adding more weight to the already tremendous budget deficit.

To read the rest, please look at our original article "Is the First Time Home-Buyers Tax Credit Really as Good as It Sounds?" Thank you.

Image: Credits to leadenhall.

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