The Home Buyers’ Plan, or HBP, allows Canadian home buyers to increase their down payment by withdrawing up to $35,000 (potentially $70,000 for couples) from their registered retirement savings plan, or RRSP. The HBP can also be used by participants who are buying or building a home for a relative with a disability.
An added benefit of the HBP is that accessing your RRSP this way is tax-free — if the amount used is paid back on time.
Who is eligible for the Home Buyers’ Plan?
To participate in the Home Buyers’ Plan you must meet a variety of conditions:
- Be a resident of Canada.
- Have an RRSP with sufficient funds to withdraw.
- 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 before you began participating in the HBP, “you did not occupy a home that you owned or one that your current spouse or common-law partner owned.”
- Be a repeat buyer who is purchasing or building a home for a relative with a disability.
- Plan to use the home as your principal residence within a year of building or buying it.
- Have a written agreement to buy or build a home for themselves or for a relative with a disability.
- Plan to purchase a qualifying type of house, located in Canada. Most types of homes, including condo and apartments, qualify. Co-op housing doesn’t always qualify, but there may be exceptions..
Even though the Home Buyers’ Plan is intended for first-time home buyers, participants can apply to use it again so long as they have repaid the money they withdrew from their RRSP and meet all the other HBP eligibility conditions.
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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. Couples may each be able to withdraw $35,000, for a total of $70,000.
Your RRSP funds must have been in the account 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.
You must also withdraw from your RRSP no later than 30 days after obtaining the title of your new home. All your withdrawals under the HBP must be made within one calendar year.
Repaying RRSP funds used for the HBP
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. Repayment of the HBP does not count toward your yearly RRSP deduction limits.
If you are not able to pay back the required amount in any of the years following your RRSP withdrawal, the difference becomes RRSP income for that year, for which you will be taxed by the CRA.
Can you cancel the Home Buyers’ Plan?
You are generally not allowed to cancel your participation in the HBP, but 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 complete form RC471 Home Buyers’ Plan (HBP) Cancellation and send it all to the CRA along with a receipt of a repayment to your RRSP and a letter explaining your decision..
How to apply for the Home Buyers’ Plan
To begin the process of applying for the Home Buyers’ Plan, you must download and fill out form T1036, the ‘Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP’. You must fill out Area 1. 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.
Pros and cons of the Home Buyers’ Plan
- The HBP acts like an interest-free loan — if you repay your funds according to schedule.
- The HBP can increase your down payment by $35,000, making it easier to get a mortgage and buy your first home.
- If your RRSP doesn’t already have thousands of dollars in it, the HBP won’t help you very much.
- You have to make yearly repayments or else your RRSP withdrawals will be taxed by the Canada Revenue Agency.
- Reducing your RRSP balance means forgoing potential tax-sheltered investment/savings growth.
Additional help for home buyers
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.