RRSP Home Buyers Plan in Canada
The RRSP Home Buyers’ Plan (HBP) is a program offered by the Canada Revenue Agency (CRA) that allows eligible first-time homebuyers to withdraw up to $35,000.00 (increased from $25,000.00 in March 2019) tax-free from their RRSP. The funds are to be used towards the down payment on the first-time purchase of their home or towards the building of a new home.
How Does the RRSP Home Buyers Plan Work?
In order to qualify for the HBP, you will need to have an RRSP with contributions made prior to 90 days before your first withdrawal.
You Are Eligible For The Home Buyers Plan If:
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You are a Canadian resident
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You are a first-time homebuyer (or builder), or you are helping a disabled relative purchase their primary home
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You have zero balance in your HBP account (before participating a second time)
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The HBP will be updated later in 2019 to include participants that have experienced the deterioration of a marriage or the end of a common-law relationship
In order to withdraw funds from your RRSP under the HBP, you need to fill out the “Request to Withdraw Funds From an RRSP” (Form T1036). You will then submit this to your financial institution and let them know about your intention to withdraw funds.
You can make multiple withdrawals under the HBP in the same year as long as you don’t exceed $35,000.00.
If your spouse has an RRSP, they can also withdraw up to $35,000.00 under the HBP.
As a partnership, this will allow you to use $70,000.00 from your RRSP towards the down payment of a home or to be used towards the building of a new home.
Keep in mind that RRSP contributions made within 90 days prior to the withdrawal will not be eligible for the HBP. Similarly, your withdrawal will not be eligible for more than 30 days after getting the title to your new home.
How to Pay Back Your RRSP Home Buyers’ Plan
Repayments to your HBP need to begin within the second year after the withdrawal was completed. You need to pay back 1/15th of the loan each year, to be paid back fully within 15 years. The CRA will send you an HBP account statement showing you the total amount owing as well as the minimum payment due. Your HBP account balance is shown on your Notice of Assessment as well as within your MyAccount information with your online CRA account.
You’ll need to report the repayment on Schedule 7 and submit this along with your T1 General Income Tax Return (your CPA can help you with this). As long as you’re making the minimum annual payment each year, you’ll be in good standing. You can also pay it back more quickly if you prefer. If you aren’t able to make the minimum annual payment, that amount will be added to your net income and you will be taxed on it.
Contributions to repay your HBP do not affect your RRSP contribution room, nor will the RRSP tax deduction apply on these repayments. RRSP contribution receipts will be offset by the amount declared on Schedule 7 as an HBP repayment.
Speak with your CPA if you’d like more information about how the HBP works and what it means for you. When you’re paying back your HBP loan your CPA will ensure that you’re designating these funds as HBP repayments rather than regular contributions to your RRSP. This is very important to ensure that you don’t default on your repayment.