Summary: What is the Home Buyers’ Plan?
The Home Buyers’ Plan (HBP) is a federal program that allows eligible first-time home buyers to withdraw up to $60,000 tax-free from their RRSP to put toward a down payment on a qualifying home. Couples who both qualify can each withdraw up to $60,000 from their own RRSPs, for a combined total of $120,000.
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 withdraw funds from an RRSP outside of the HBP, the withdrawal is treated as taxable income and the RRSP issuer will withhold tax right away: 10% (up to $5,000), 20% (from $5,001 to $15,000), and 30% (over $15,000). These amounts are withheld at source and then reconciled when you file your income tax return. Under the HBP, however, eligible withdrawals are not taxed — provided you meet the program requirements and repay the funds within the required time frame.
To make an HBP withdrawal of up to $60,000 per person (up to $120,000 for a couple), you need to submit Form T1036 to the financial institution where your RRSP is held.
Repayments:
- Normally, you must begin repaying your HBP withdrawal in the second calendar year after the year of withdrawal.
- You must repay at least 1/15th of the borrowed amount each year until the full balance is repaid within 15 years. For example, if you withdrew $15,000, you would need to repay at least $1,000 each year.
- If you don’t make the required repayment in a given year, the shortfall is added to your taxable income for that year. For instance, if your required repayment is $1,000 and you only repay $500, the remaining $500 is taxed as income.
Temporary Grace Period & Flexibility in Repayments:
For HBP withdrawals made between January 1, 2022 and December 31, 2025, the start of repayment is delayed: you do not need to begin repayments until the fifth year after the withdrawal. It’s important to note that you do not have to repay the funds into the same RRSP you withdrew them from. You can repay into another RRSP, including a self-directed RRSP.
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 at the time of withdrawal.
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!
C: 204-898-1566 & E: [email protected]
