Buying or building a home is a major financial decision. The Home Buyers’ Plan is a program that allows you to withdraw up to $25,000 from your Registered Retirement Savings Plan 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. The period begins on Jan. 1 of the fourth year before the date that the funds are withdrawn. For example, if you want to withdraw funds in March 2015, the four-year period begins on Jan. 1, 2011. If you or your spouse have not owned a home in that time period, you are considered to be a new home buyer.
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.
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 in 2015, you have until Oct. 1, 2016, 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 $25,000 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 $25,000. If you are buying the home with your spouse, then each one of you can withdraw $25,000, for a total of $50,000.
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Funds which have been withdrawn under an HBP must be repaid to your RRSP.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 2015, your repayments will begin in 2017.
Each year, the CRA will send you an HBP statement of account with your notice of assessment. 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 129 of your income tax return. The amount you include on line 129 is the minimum 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.