Affording a home can be challenging when are you are a first-time buyer. To lend people buying a home a helping hand, the federal government lets home buyers borrow a maximum of $25,000 from their RRSPs.
When borrowing money from your RRSP under the HBP, it is important to follow the repayment rules. Otherwise, the withdrawals are added back to your income. Start repaying the withdrawals in the second year after your initial withdrawal, but make sure you qualify before you actually withdraw anything from your RRSP; there are several conditions you must meet.
What Is the Home Buyers’ Plan?
The HBP is a program to assist first-time home buyers with financing the purchase of a property. Under the HBP, you can borrow a maximum of $25,000 from your RRSP in a single tax year.
To participate in the HBP, you must meet the following conditions:
- Be a first-time home buyer.
- Enter into a written agreement to purchase or construct a qualifying home for yourself or a person with a disability.
- Plan to designate the home as your principal residence no longer than a year after purchasing or constructing your home.
- Be a Canadian resident.
- Make all RRSP withdrawals in the same tax year.
You cannot withdraw funds from a locked-in RRSP (i.e., from your former employer’s pension plan). If you previously participated in the HBP, your previous balance must be at zero by Jan. 1 in the year you plan to participate again.
Repaying Home Buyers’ Plan Withdrawals
You have 15 years to repay withdrawals made from your RRSPs under the HBP. In each tax year, repay one-fifteenth of the total amount borrowed until your full amount owed is paid back to your RRSPs. Start making repayments in the second year after the tax year you made your initial withdrawal.
Repayments for the HBP are made with contributions to your RRSP in the year of the repayment or 60 days in the following tax year. After you make your RRSP contribution, choose to count all or a portion towards repayment under the HBP.
To designate your RRSP contributions as a repayment under the HBP, fill out lines 245 and 246 of Schedule 7, RRSP and PRPP Unused Contributions, Transfers, and HBP or LLP Activities; include Schedule 7 with your tax return. Make sure to do this, otherwise your RRSP contributions do not count as a repayment; the HBP amount is added back as taxable income and you lose this RRSP room forever.
Keeping Track of the Home Buyers’ Plan
The CRA sends you the Home Buyers’ Plan Statement of Account every tax year along with your notice of assessment. This statement displays your total withdrawals under the HBP, how much you have repaid, your outstanding balance and how much you can contribute to your RRSPs to repay the next tax year.