Understanding the Home Buyers’ Plan (HBP) with David Stasica. David is a REALTOR® working in Winnipeg, Manitoba at Royal LePage Alliance.
What is the HBP?
The Home Buyers’ Plan is a program through the Canada Revenue Agency (CRA), which allows you (if you’re an eligible first-time home buyer) to withdraw funds from your Registered Retirement Savings Plan (RRSP) to buy or build a home for yourself or for a related person with a disability. You can withdraw up to $35,000 tax-free (this amount used to be $25,000, but it was increased as of March 19, 2019… sometimes it pays to wait!).
Think of it as a loan to yourself. With that said, just like any loan, there are conditions.
How Does the HBP Work?
As your starting point, you need to contribute to your RRSP (if you don’t yet have an RRSP, check out our recent article that provides a great summary: Understanding RRSPs).
Normally, if you were to withdraw funds from an RRSP, the funds would be treated as taxable income and you would be taxed at the following rates, depending on your withdrawal amount: 10% up to $5,000; 20% up to $15,000; and 30% for any amount over $15,000.
Under the HBP, you are not taxed – that is if you are eligible and if you repay these funds within a specific time-frame.
To make an HBP withdrawal of up to $35,000 per person (up to $70,000 for a couple), you need to submit a T1036 form to the financial institution where your RRSP is held.
The money used from your RRSP will need to be repaid each year. These repayments need to start in the second year after the HBP withdrawal was completed. You must repay 1/15th per year, which means that the funds withdrawn must be repaid within 15 years. So, if you borrowed $15,000 from your RRSP under the Home Buyers’ Plan, the annual repayment would be $1,000 per year for 15 years.
If, for any reason, you cannot make the required payment in a given year, the shortfall during that year will be counted as income and you will be required to pay taxes on that amount. So, for example, if your required annual repayment amount is $1,000 and you only repaid $500 in a particular year, then the remaining $500 is included as taxable income for that year.
Important to note, there is no requirement that the funds be repaid to your RRSP from which you withdrew the principal amount. Instead, you can contribute these funds to a self-directed RRSP, for example.
Who Qualifies for the Home Buyers’ Plan?
To be considered a first-time home buyer, you must meet the following criteria set forth by CRA:
- You have not owned a home that was your principal residence during the four calendar years before the year you plan to use the HBP;
- Your spouse cannot have owned a home where you resided together during the above-noted period; and
- You must be a resident of Canada.
Once your HBP balance is at $0 and you have completely repaid the borrowed funds from your RRSP, the CRA allows you to participate again.
- With that said, there are exceptions to these rules:
- There are exceptions to the first-time homebuyer criteria. If you, or a person related to you by blood, marriage, adoption or common-law, has a disability, you can qualify to use funds from your RRSP under the HBP to build or buy a home that is more accessible for the person with the disability;
- You may also take advantage of the HBP if you have experienced a breakdown in your marriage or common-law partnership; and
- You also can withdraw the funds from your RRSP to give to a person related to you by blood, marriage, adoption or common-law to buy or build a home that is better suited to their disability.
David is a REALTOR® working in Winnipeg, Manitoba at Royal LePage Alliance. If you are looking to purchase a home within the near future or have specific questions regarding the Winnipeg real estate market, please feel free to contact me today using the number of e-mail address below!