Buying or building a home is a major financial decision. The Home Buyers’ Plan (HBP) is a program that allows you to withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) to buy or build a home.
Conditions of Eligibility
In order to be eligible for the Home Buyers’ Plan, you must be considered a first-time home buyer, have a written agreement to buy an eligible home, and intend to live in the home as your principal place of residence for at least one year.
Under the terms of the HBP, a first-time home buyer is defined as someone who has not lived in a home owned by either themselves or their spouse in a four-year period. As per the CRA – “The four-year period means the four years prior to a home purchase. The period begins on January 1 of the fourth year before the year you withdraw funds from your RRSP, and ends 31 days before the date you withdraw the funds.” Please review this link for further details on HBP.
If you have a disability, you can use the HBP to purchase a home that better suits your special needs. Additionally, if someone you are related to has a disability, you can use an HBP to purchase a home for them. This link will provide you with more information, scroll down to “person with disability”
An eligible home is one that is purchased or built by or before Oct. 1 in the year following the withdrawal. For example, if you make a withdrawal from your RRSP at any time during the tax year, you have until Oct 1st of the following year to buy or build the home. If the home you purchased is not the same one as the home identified in the written agreement that was in place at the time of the withdrawal, you must advise the Canada Revenue Agency.
How to Withdraw Funds
To make a withdrawal, you must use Form T1036 Home Buyers’ Plan (HBP) Request to Withdraw Funds From an RRSP. Fill out the form and give it to your RRSP adviser who will withdraw the funds tax-free. You can withdraw a maximum of $35,000 and all withdrawals must be made in the same calendar year.
You can only withdraw funds from an RRSP if you are the owner of the plan. You can withdraw funds from more than one RRSP as long as you are the owner of each one, but total withdrawals cannot exceed $35,000. If you are buying the home with your spouse, then each one of you can withdraw $35,000, for a total of $70,000.
In the year of withdrawal, you will receive a T4RSP – Statement of RRSP Income slip with the amount of the withdrawal shown in Box 27. This slip is for information purposes only and will not affect your tax return by adding any income.
Repayment of Funds
Funds which have been withdrawn under an HBP must be repaid to your RRSP, otherwise, they will be included in your taxable income. Generally, you have up to 15 years to repay to your RRSP the amounts you withdrew. Your first repayment starts in the second year after the withdrawal. For example, if you withdraw funds in 2020, your repayments will begin in 2022.
Each year, the CRA will send you an HBP statement of account with your Notice Of Assessment (NOA). This statement will inform you of the amounts you have repaid so far, your remaining balance, and the amount you will need to pay in the upcoming year.
If you wish, you can pay more than the required amount. Such payments will reduce your future obligations proportionally to the time remaining on your repayment schedule.
If you do not make the full annual repayment to your RRSP, or if you pay nothing at all, you have to include the unpaid portion of the required payment as RRSP income on Line 12900 – RRSP Income of your income tax return. The amount you include on Line 12900 is the minimum repayment amount you have to repay as shown on your HPB statement of account, less any portion you paid. Your HBP balance will be reduced accordingly.
Termination of Plan and Special Circumstances
There are special circumstances that will cause the HBP to terminate and trigger the application of special rules. First, the death of the owner of the plan will automatically terminate the plan and the unpaid balance will be included in the deceased’s income for the year immediately preceding his death.
Second, if a plan participant reaches age 71, he is no longer permitted to make repayments to his RRSP and will be required to include a portion of the unpaid withdrawals in his annual income. This amount will vary depending on the balance of the HBP and the length of time remaining in the repayment period.
Finally, if the HBP participant becomes a non-resident of Canada, he must either repay the balance owing or include it in his income for the year of his departure from Canada.
References & Resources:
Canada Revenue Agency: How can I participate in the Home Buyers’ Plan?
Canada Revenue Agency: What is the Home Buyers’ Plan (HBP)?
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