The Home Buyers’ Plan (HBP) allows first-time home buyers to withdraw up to $35,000 (or potentially $70,000 for couples) from their Registered Retirement Savings Plan (RRSP) tax-free to put toward buying or building a first home.
You can also withdraw money from your RRSP without tax consequences if you are buying or building a home for a relative with a disability. The funds must be paid back into your RRSP within 15 years.
Who is eligible for the Home Buyers’ Plan?
To participate in the Home Buyers’ Plan you must fulfill a variety of conditions:
- You must be a resident of Canada.
- The home must be your principal residence within a year of building or buying it.
- You must be a first-time home buyer. According to the government of Canada’s website, “You are considered a first-time home buyer if, in the four-year period, you did not occupy a home that you owned or one that your current spouse or common-law partner owned.”
- If you are not a first-time home buyer, you can still qualify if you plan to buy or build a home for a relative with a disability.
- Applicants must have a written agreement to buy or build a home for themselves or for a relative with a disability.
- Qualifying homes must be located in Canada. All types of homes, including single-family, semi-detached, townhouses, mobile homes, condominium and apartment units, etc., qualify. There may be some exceptions for co-op housing.
Note that even if you have already participated in the Home Buyers’ Plan, you may be eligible to apply again as long as you have repaid the money you withdrew previously from your RRSP and you meet all the other HBP eligibility conditions.
How to apply to The Home Buyers’ Plan
To begin the process of applying for the Home Buyers’ Plan, you must download and fill out form T1036, which is entitled ‘Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP’. You must fill out Area 1 and the financial institution holding your RRSP fills out Area 2.
Afterwards, your RRSP provider will deposit the funds into the account of your choosing. The financial institution will also send you a T4RSP slip. This slip will confirm how much you withdrew from your RRSP and will serve a supporting document for your tax return the following year.
How does the Home Buyers’ Plan work?
Once you are approved for the Home Buyers’ Plan, you can withdraw up to $35,000 from your RRSP without paying any withholding taxes. However, your RRSP funds must have been in your RRSP for at least 90 days, or they are not eligible for withdrawal under the HBP. You have until October 1st of the year following your withdrawal to buy or build your home.
Furthermore, you must withdraw the amount from your RRSP no later than 30 days of taking the title of your new home. All your withdrawals under the HBP must be made within one calendar year.
How to repay the Home Buyers’ Plan amount
Participants in the Home Buyers’ Plan must repay the amount they withdrew from their RRSP within 15 years. The minimum annual repayment amounts are essentially the length of time you have to pay back the loan (15 years) divided by the amount you withdrew.
For example, if you withdrew the entire allowable amount of $35,000, your minimum annual repayments would be $2,333 ($35,000 / 15). The first payment is due two years after you made your first withdrawal.
You repay the HBP by depositing the allotted amount back into your RRSP before the annual RRSP deadline. The Canada Revenue Agency sends participants a Home Buyers’ Plan account statement in their notice of assessment. The HBP statement details how much you’ve already paid back and how much you have yet to repay.
You are allowed to pay back more than you owe, which will reduce your yearly payments overall. Your repayments of the HBP do not count towards your yearly RRSP deduction limits.
Can you cancel the Home Buyers’ Plan?
You are generally not allowed to cancel your participation in the HBP. There are some exceptions, including:
- You or your disabled relative did not buy or build a home by October 1 of the year following the date you withdrew the money from your RRSP.
- You became a non-resident of Canada before purchasing the home.
If you do want to cancel the Home Buyers’ Plan, you must include a receipt of a repayment to your RRSP, a letter explaining your reasons, and complete form RC471 Home Buyers’ Plan (HBP) Cancellation and send it all to the CRA. If you do not repay the full amount you took out of your RRSP, then any remaining amount will be considered taxable income.
Pros and cons of the Home Buyers’ Plan
- The HBP acts like an interest-free loan
- The HBP gives you access to money that could make it easier and a less onerous financial burden to buy your first home
- You have to make yearly repayments
- You forgo potential tax-sheltered investment/savings growth by taking money out of your RRSP for a period of time
Some other national first-time home buying programs include:
- First-Time Home Buyer Incentive. The government gives eligible home buyers a tax-free loan amounting to 5% or 10% of an eligible property’s purchase price.
- GST/HST New Housing Rebate. Eligible home buyers can recover some of the GST or the federal part of the HST they paid on a newly built home.
- Home Buyers’ tax credit. Eligible first-time home buyers can receive a $5,000 non-refundable income tax credit.