The RRSP Home Buyers’ Plan (HBP) lets you withdraw up to $35,000 tax free from your RRSP in order to fund the purchase of your first home. You have to start paying back your withdrawal 2 years after you took it out and you have up to 15 years to completely pay it back.
With so many things to save for, the Home Buyers’ Plan lets you tackle 2 major goals at once: your retirement and your first home. But there are some details to consider before you make the plunge with this attractive RRSP withdrawal option.
Here’s everything you need to know about the Home Buyers’ Plan.
Are you eligible for the Home Buyers’ Plan?
In order to participate in the Home Buyers’ Plan, you must meet the following criteria:
- You must be a resident of Canada with an RRSP. In order not to lose your RRSP contribution room, the funds you withdraw must have been in your account for at least 90 days.
- You must be considered a first time home buyer, which means you haven’t lived in a home that you or your partner has owned during the 4 years prior to your home purchase.
- You must provide a written agreement to buy or build a home that you’ll occupy.
- You must be planning to use the home as your primary residence within a year of buying or building it, but you can’t have been living in the home for more than 30 days before making the withdrawal.
If you’ve already participated in the HBP before, you can become eligible again if you’ve completely paid off the previous withdrawal by January 1st of the year you’re planning to make your next withdrawal.
You can also participate in the HBP if you’re planning on helping a relative with a disability to buy or build a house of their own. In this case, you’ll need a written agreement on their behalf, and intend that they will be the primary resident of the home within a year.
See How to participate in the Home Buyers’ Plan (HBP) for more details.
How to start the Home Buyers’ Plan process
If you qualify, all you need to do to make sure your RRSP withdrawal counts towards the Home Buyers’ Plan is fill out a specific form (T1036) and give it to your RRSP provider (i.e. your bank).
You’re allowed to make several withdrawals from multiple RRSP accounts, as long as you stay under the $35,000 limit and each withdrawal is within the same calendar year. Remember to only withdraw funds that have been in your account for at least 90 days, or you risk losing your RRSP contribution room permanently.
Ready to make your withdrawal? You can find the form here: T1036 Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP. Fill out Area 1 before giving it to your RRSP provider, and then they’ll fill out Area 2 and help you with the next steps.
Home Buyers’ Plan repayment
Once you’ve taken out money from your RRSP to buy your home, you have to start repayments in 2 years at the latest. So if you withdraw in 2023, the latest you can start making repayments is 2025. You can make the payment at any time during the calendar year and up to 60 days in the year after.
You have up to 15 years to fully repay what you took out, for a total of 17 years after your initial withdrawal, or you’ll face tax consequences. Though your repayment period starts 2 years after the withdrawal, you can start making your payments earlier than that and your total repayment period will stay the same.
Every year after your withdrawal, the CRA will send you a statement with your Notice of Assessment which will include:
- how much you’ve paid,
- how much is left to repay, and
- the minimum amount you need to contribute for the next year.
If you can’t make the minimum payment, you’ll have to include the amount you can’t cover as RRSP income on the next year’s tax return, which will be subject to income tax and withholding tax.
Your repayments don’t affect your RRSP contribution room for that year, but you also can’t claim them as a tax deduction.
For more information on other situations that come up during HBP repayment, see How to repay the funds withdrawn from RRSP(s) under the Home Buyers’ Plan (HBP).
The pros and cons of the Home Buyers’ Plan
The Home Buyers’ Plan can be a convenient way to save for both your retirement and your new home without being subjected to tax, but it also has a lot of rules for what you must withdraw and these could complicate your situation.
Here’s an overview of the pros and cons.
The pros of HBP
- The withdrawal is tax free.
- If you’re a saver and have regularly been contributing to your RRSP since you began work, you should have a nice little nest egg saved up.
- The extra $35K may help you skirt around needing CMHC insurance, saving you money on your mortgage.
- The money is ready to use when you find the home in the neighbourhood and in the price range you desire.
- If this is your first home, you also qualify for a First-Time Home Buyers (FTHB) tax credit which gives you up to $1,500 of Federal Tax relief. See First-Time Home Buyers’ Tax Credit (HBTC) for more information.
But there are some drawbacks as well…
- You must pay the money back within 15 years, starting the 2nd year after the year you took it out, or else you’ll be subject to taxation.
- During that time you may be missing out on some sweet compound interest/dividends working in your favour.
- Putting money into a home may not return as well as a balanced portfolio. Home prices are subject to many things – demand, condition, location, etc.
- You have to pay the money back. I mentioned that already, but it’s worth saying again since this may be tough in some households now carrying a mortgage.
If you do this route, paying back the money as quickly as possible should be a priority.
Will you take advantage of the Home Buyers’ Plan?
Are you thinking of buying a home soon and raiding your RRSP in order to help out with a downpayment? Will $35K be enough?
Do you use an RRSP at all? Maybe TFSAs are more your speed….
Let us know in the comments.
FAQ
What’s the Home Buyers’ Plan 90 day rule?
The funds you’re using for the Home Buyers’ Plan must have been in your RRSP account for at least 90 days before you withdraw them. Any less than that, and may lose that RRSP contribution room permanently.
What counts as a qualified home for the Home Buyers’ Plan?
Most homes located in Canada qualify for the Home Buyers’ Plan, including existing homes and those you’re planning on building. They can be detached, semi-detached, a townhouse, a mobile home, or even an apartment or condo. That said, you must own the unit in order to qualify, not just rent it.
How do I cancel the Home Buyers’ Plan?
If you end up not buying or building the home you were planning to with the Home Buyers’ Plan, you have until December 31st of the year you received the funds to pay them back. In most other cases, you won’t be able to cancel your participation and will simply need to pay back as much as you can.
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