The Home Buyers Plan (HBP) Using RRSPs

How Does The RRSP Home Buyers Plan (HBP) Work?

The Home Buyers Plan (HBP) enables first-time homebuyers to tax-free withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSPs) to purchase their first house.

First-time homebuyers who have not owned a home in the last four years are eligible for the HBP.

The withdrawal must be made within 90 days you buy a home, and you must repay your RRSP within 15 years.

If you are no longer considered a first-time homebuyer, you can still participate in the HBP if you have experienced certain life events, such as divorce or the passing of a spouse or common-law partner.

The First-Time Home Buyers Plan Incentive Pros And Cons

The three types of accounts you may withdraw from your RRSP to put money towards your Home Buyers Plan program include a Registered Retirement Savings Account (RRSP), Pooled Registered Pension Plan (PRPP), or a Specified Pension Plan (SPP).

Benefits

• Allows you to withdraw money from your Registered Retirement Savings Plan up to $35,000 tax-free
• The Government of Canada helps you to buy or build a home and qualify for a mortgage more easily
• Both spouses can participate in The Home Buyers Plan if they are both first-time home buyers
• The money withdrawn is not taxed as income
• The Home Buyers Plan can be used in conjunction with the First Time Home Buyers Tax Credit
• If you are buying with someone else who is also a first-time home buyer, you can each withdraw up to $35,000 for a total of $70,000 per couple
• The money you withdraw is not considered income, so it will not affect things like whether or not you qualify for certain government benefits or tax credits
• Provides peace of mind knowing you have saved for a down payment
• Contributions made to RRSP(s), PRPP, and SPP do not count toward the RRSP deduction limit that would otherwise apply. Even as your deduction limit is zero, you can still make contributions to your RRSP(s), PRPP, or SPP and designate this as a repayment under the Home Buyers Plan program

Disadvantages

• Recent deposits you’ve made into your RRSP/PRPP/SPP within the last 90 days (3 months) can not be withdrawn under HBP
• If you are not a first-time home buyer, you are not eligible for the program
• You may not have enough RRSP savings to take advantage of the total $35,000 limit
• You must repay the incentive in full back into your RRSP within 15 years, or you will be subject to taxes on the outstanding amount
• The Home Buyers Plan may not cover the entire cost of the down payment, meaning home buyers will still need to come up with additional funds
• An amount you selected as repayment cannot be claimed as a deduction on your income tax and benefit return
• Locked-In RRSPs may not qualify for the home buyer’s plan (i.e.. LIRA/LRSP/RLSP)

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Who Qualifies For First-Time Home Buyer Incentive Plan In Canada?

Review the below eligibility requirements to determine if you may qualify for the First-Time Home Buyer Plan.

Home Buyers Plan – Incentive Eligibility Requirements

• Must be a First-Time Home Buyer
• Your spouse or common-law partner can not be a homeowner in the last four years
• The money you intend to withdraw from your RRSP/PRPP/SPP must be in your RRSP for greater than 90 days (3 months)
• Your residency status is within Canada
• The property purchase must be used as your principal place of residence
• To purchase or construct a qualified property for oneself, a signed agreement is required

Home Buyers Plan – Incentive Eligibility Requirements For A Related Person With A Disability

• If the property purchase is for a family member with a disability, they must intend to use the property as their principal place of residence
• To help a relative with a disability purchase or construct an eligible house, or to purchase or construct a qualifying home on their behalf, you must have a signed agreement as proof

Home Buyers Plan – Withdrawal Conditions Using RRSP/PRPP/SPP

• At the time of the withdrawal, you must be a Canadian citizen or permanent resident
• You must receive all withdrawals for the program in the same calendar year
• More than $35,000 can’t be taken out
• As long as you are the owner of each RRSP, you are permitted to withdraw money from several RRSPs
• You cannot possess the qualifying house for more than 30 days prior to the withdrawal being made, nor may you, your spouse, common-law partner, or the related person with a disability for whom you purchase or construct the home
• The payment on a home or pre-construction build must be completed on or before October 1st in the next year immediately following the withdrawal

Repayment Conditions

Canada Revenue Agency (CRA) provides you with a Home Buyers Plan statement of account every year, along with your notice of assessment or notice of reassessment.

The details in this statement will advise you on what you are expected to pay for that year.

Payments to pay back the amount withdrawn should be made continuously year-over-year until the total amount you have withdrawn (up to $35,000) has been repaid to your RRSP/PRPP/SPP.

Repayment Process

Payments on your first home start two years after you have initially withdrawn the tax-free money.

You may check your updated account balance of what you owe by logging in to your CRA Account or on the MyCRA Account App.

• You are expected to repay the amount you have withdrawn within 15 years back to your Registered Retirement Savings Plan
• Repayments start two years after the year you initially withdrew the money from your RRSP
• You may repay the borrowed amount to your Registered Retirement Savings Plan at anytime. As well as anytime before the first payment starts in two years time

What Happens If You Don’t Pay Back The Home Buyers Plan?

If you’ve taken out the Home Buyers Plan to help with your down payment, you must repay it within 15 years.

If you don’t make a repayment, the amount will be added to your tax bill for that year. The Canada Revenue Agency (CRA) will charge interest on the unpaid amount.

The good news is that you can usually arrange to make smaller monthly payments instead of one lump sum.

Odane Harding

Odane Harding is a Toronto Real Estate Agent who specializes in helping new buyers and sellers of homes. With over 6 years of experience in the industry, Odane brings his knowledge and expertise to each client, ensuring they have a smooth transaction. His passion for helping people and his dedication to providing excellent service makes him stand out amongst other agents. Call Odane today to get a free consultation with your next new home purchase or sale.

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