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One of the biggest hurdles to buying a home is saving up enough money to make a down payment. While we don’t all have large amounts of cash burning a hole in our bank accounts, many of us do have RRSPs (Registered Retirement Savings Plans). If you’re looking to buy your first home and need some financial assistance with your down payment, the Home Buyers’ Plan could be a great fit. Learn more about what the program is, how it works and how it can help.
Home Buyers’ Plan (HBP): A Definition
By definition, the Home Buyers’ Plan is a program available in Canada that allows first-time home buyers to withdraw from their RRSPs to buy or build a qualifying home for themselves or for a related person with a disability. It’s offered through the Canada Revenue Agency (CRA) that makes it possible to take advantage of the tax deductions that RRSP contributions provide, while simultaneously saving for a down payment. Once you have enough in your RRSP, you can withdraw the funds tax-free and use them to buy your home.
How The HBP Process Works
The process for Home Buyers’ Plan can be broken down into three sections:
In order to participate, you’ll first need to ensure you’re contributing to an RRSP. Once you confirm you have the funds in your RRSP, you’ll need to fill out Form T1036; the Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP. You are required to fill out Section 1 and then give the form to the financial institution that holds your RRSP so they can fill out Section 2.
You’ll need to make your withdrawal within 30 days of the home title being placed in your name. If you try and make a withdrawal more than 30 days after you take title of the home, your withdrawal won’t qualify for the HBP and you’ll be taxed on the amount you withdraw. Your financial institution will send you a T4RSP form, which will confirm how much you withdrew from your RRSP as a part of the Home Buyers’ Plan. You must reference this form in your income tax return for the year you made the withdrawal.
Lastly, beginning 2 years from your purchase, you’ll be required to make repayments over the next 15 years to cover the amount you originally withdrew. The CRA will send you a Notice of Assessment to let you know what the remaining balance is and what minimum payment is required. To start repaying the loan, you must make a contribution to your RRSP in the year the repayment is due or in the first 60 days of the following year.
Strategically speaking, you may be thinking it’s wise to ramp up your contributions right before you apply for the Home Buyers’ Plan, but unfortunately that’s not the case. Contributions made within 90 days of the withdrawal are not eligible for Home Buyers’ Plan withdrawal. You also need to use the money on your new homewithin 30 days of closing/taking ownership, so make sure not to apply too early.
HBP Withdrawal Limit
All withdrawals made after March 2019 cannot exceed $35,000 per person. This means if you’re a couple, and you’re both first-time home buyers, you can both access up to $35,000 from your individual RRSPs for a total of $70,000. It’s important to note that you can only withdraw funds from accounts in your name.
How To Withdraw RRSP Funds
In order to withdraw funds from your RRSP under the Home Buyers’ Plan, you’ll have to fill out Form T1036; The Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP. Once you’ve filled out Area 1, you’ll give it to your RRSP issuer who will fill out Area 2. You’re able to withdraw a single amount or make a series of withdrawals in the same calendar year, but you’ll need to fill out one of these forms each time you request funds.
You’ll want to let your financial institution know your intent to withdraw funds because you need to go about this process following the proper procedure. The last thing you want is to find out that you can’t retroactively apply withdrawn funds to the Home Buyers’ Plan after you’ve already made a withdrawal.
Who Is Eligible For The Home Buyers’ Plan?
In order to take advantage of the Home Buyers’ Plan program, you’ll need to meet some eligibility criteria. Make it a point to review this in advance to ensure you qualify because if you make a withdrawal from your RRSP but don’t meet the criteria for the program, you’ll be taxed regularly and will need to include the money in your income tax statement as taxable income.
In order to be eligible as a first-time home buyer, you must meet the following criteria:
- RRSP funds you borrow must be in your account for at least 90 days prior to your withdrawal
- You cannot have owned a home within the previous 4 years
- If you’re buying with a spouse (or common law partner) who is not a first-time home buyer, you cannot have lived in a house they owned for 4 years
- You have entered into a written agreement to buy or build a qualifying home
- You must intend to live in the home within 1 year of purchase as your primary residence
- If you have used the Home Buyers’ Plan before, you cannot have any outstanding balance due
- You must make the withdrawal from your RRSP within 30 days of taking title of the home
- You must be a Canadian resident
Repaying Your HBP Loan
It’s important to understand that every dollar you borrow from your RRSPs under the Home Buyers’ Plan needs to be repaid. Repayments will begin in the second year after the withdrawal was completed. Essentially the Home Buyers’ Plan is like a loan with the benefit of having no interest to pay back. The funds borrowed must be repaid in 15 years so participants must pay back 1/15th of their total each year.
The CRA will send you an HBP account statement showing the total amount owing and minimum payment due. You can also find the HBP balance on your Notice of Assessment and on your CRA MyAccount.
What Happens If I Miss A Payment?
If you fail to make your minimum payment 1 year, you’ll be forced to include the amount you didn’t pay as RRSP income on your taxes, which in turn, defeats the purpose of taking out the tax-free loan to begin with. You’ll have to subtract any amount you did repay from your minimum repayment amount and put the answer in line 129 on your tax return. This amount will be taxed and your HBP balance will be reduced accordingly.
Things To Consider Before Enrolling In The Home Buyers’ Plan
As with any financial decision, it’s always wise to weigh your options and ensure you fully understand the Home Buyers’ Plan before you choose to participate.
First-Time Home Buyer
Understanding what qualifies as a first-time home buyer is an integral part of the process. A first-time home buyer is someone who has never purchased a home but is also not currently living with their spouse in a home they purchased.
For any withdrawals made prior to 2019, you can become eligible for the HBP if you don’t own a home or live in a home that was purchased by your spouse for 4 calendar years. As an example, if you and your spouse break up (or you sell your home) and you move into an apartment as a result, you would be eligible to participate in the HBP 4 calendar years after you moved out of the house. Keep in mind that any previous HBP balance must be paid in full before you can participate a second time.
Withdrawals After March 2019
The program rules were changed in March 2019, so any withdrawals made after that time have different eligibility criteria than previously years.
Definition Of A Related Person With Disability
Understanding what the HBP program means when it states you’re able to purchase a home for a related person with a disability is vital. In this case, a related person includes someone that is related to you by blood, marriage, common-law relationship or adoption and they don’t have to live with you in the same home. A person with a disability refers to someone who is entitled to a disability amount and has a Disability Certificate T2201 on file with CRA.
Cancelling The Home Buyers’ Plan
Before enrolling in the HBP program you’ll want to know what could happen if it doesn’t work out and you need to cancel. This could be because you (or the related person with a disability) weren’t able to buy or build a qualifying home by the required date, or that either of you became a nonresident of Canada before completing the purchase/build.
Either way, you’ll need to fill out form “RC471 Home Buyers’ Plan (HBP) Cancellation” and include a letter of explanation and a receipt for the redeposit of funds.
HBP repayment doesn’t count as a contribution for tax purposes. If you choose not to repay the full amount you withdrew, any funds that are not redeposited will be treated as a normal RRSP withdrawal (declared as income and taxed accordingly). Cancellation repayment must be made by December 31 of the year after you made the withdrawal.