How the Home Buyers Plan Works
With the increased cost of purchasing a home, there are many tools available to help individuals and/ or couples make the purchases of their first principal residence. The Home Buyers’ Plan (HBP) allows you to make a withdrawal from your RRSP to help you buy or build a qualifying home. According to the CRA a qualifying home is a housing unit located in Canada that is either already existing or being constructed.
Conditions:
Along with being a qualifying home, there are several other conditions that you must meet.
You must be a first-time home buyer. This means that you have not at any time lived in a qualifying home owned individually or jointly within the last 4 years.
You must have a written agreement to buy or build a qualifying home. The agreement must include the date it was signed, the address of the qualifying home, and the closing date.
You must be a resident of Canada at the time you make the withdrawal from your RRSP.
You must intend to occupy the qualifying home as your principal place of residence within one year after buying or building it.
Making your Withdrawal:
To apply to utilize the HBP, you must fill out form T1036, Home Bouyer’s Plan (HBP) Request to Withdraw Funds from and RRSP every time you wish to make a withdrawal from your RRSP for HBP purposes. Currently, there is a maximum withdrawal amount of $35,000 under HBP. Essentially what this means is that your RRSP issuer will not withhold any tax on HBP withdrawals for amounts equal to or less than $35,000. Any amount taken greater than $35,000 will be taxable as income in the year you made the withdrawal.
RRSP Contributions:
To be able to withdraw the money using the HBP, the contributions must be in the RRSP for at least 90 days prior to the withdrawal. If you make contributions within that 90 day window, the fair market value in your RRSP fair market value must be equal to at least the value of those contributions.
Repaying the HBP:
15 years after you make a withdrawal from your RRSP, you must have the amounts you withdrew under the HBP repaid. Your repayment period starts the second year after you made your first withdrawal. For example, if you made your first withdrawal in 2023, your first repayment will take place in 2025. You can view the balance owing in your CRA My Account. To make such repayments you contribute the money to your RRSP, and then enter the amount you want to designate as repayment on line 24600 on Schedule 7, RRSP, PRPP, and SPP Contributions and Transfers, and HBP and LPP on your tax return.
There is a minimum amount you must repay annually once you reach the repayment phase. Your minimum annual repayment value is calculated as follows:
Total Amount Withdrawn-(Reypayments Already Made)
————————————————————
(Number of Repayment Years Remaining)
=Minimum Annual Payment
If you fail to meet the minimum repayment requirements, you must report that amount as RRSP income on line 12900 on your tax return.
FHSA and HBP:
Another useful tool when looking to buy your first qualifying home is the FHSA. The HBP and FSHA can be used simultaneously to further enhance your abilities to afford a home. To learn more about the FSHA, I recommend looking at our post detailing everything about the FSHA or doing research about it online.
Agency, C. R. (2023a, November 9). Government of Canada. Canada.ca. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan/definitions-home-buyer-s-plan.html
Agency, C. R. (2023b, December 1). Government of Canada. The Home Buyers’ Plan - Canada.ca. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html