First Time Home Buyers Plan

Are you a first-time home buyer? The Home Buyers Plan (HBP) can help free up funds to finance your down payment, tax-free. The HBP is a program of the Canadian federal government administered by the Canada Revenue Agency (CRA).  Through the Home Buyers Plan, eligible buyers can withdraw up to $25,000 from your Registered Retirement Savings Plan (RRSPs) to go toward the purchase of your first home. Buying a home with your spouse, a family member, or other individual? You are each eligible to withdraw up to $25,000, provided you both qualify as first-time home buyers. The HBP can also be used to purchase a home for a relative with a disability, although the applicable terms and conditions differ.

Starting two years after your withdrawal, you have a window of 15 years to repay your RRSPs the full amount without incurring any taxes. The CRA will provide you with a yearly repayment plan. If you fail to repay the required amount in a given year, it will be counted as taxable income for the year. You can pay back your RRSP on the provided schedule, or pay it back faster if you wish. HBP repayments do not affect your yearly RRSP contribution limit.

WHO IS ELIGIBLE FOR THE HOME BUYERS PLAN?

The eligibility criteria for RRSP withdrawals under the Home Buyers Plan are as follows:

  • You must be a Canadian resident at the time of the withdrawal
  • You must be entitled to receive payments from the RRSP in order to withdraw funds
  • You must have a written agreement to buy a qualifying home, or to build a qualifying home
  • Neither you nor your spouse/common-law partner can own the qualifying home for more than 30 days prior to the withdrawal
  • You must intend to live in the home as your principal place of residence within a year of the withdrawal
  • You must have no balance remaining from previous participation in the Home Buyers Plan
  • You must be an eligible first-time home buyer. In order to qualify, you or your spouse or common-law partner have not owned a house as your principal place of residence within the last four years.

Other restrictions and eligibility criteria apply. Visit the CRA website or speak with your mortgage planner for more details.

RRSPS ELIGIBLE FOR THE HOME BUYERS PLAN

Not all RRSPs are eligible for the HBP. Generally, locked-in RRSPs and group plans do not allow withdrawals. To be certain, verify with the issuer(s) of your RRSP to learn which RRSPs can be used for the Home Buyers Plan.

HOMES ELIGIBLE FOR THE HOME BUYERS PLAN

The Home Buyers Plan applies to most homes in Canada. You can purchase a resale freehold property, townhome, or condo, or a new build home. The rules differ slightly for cooperative housing, so please inquire for more details.

HOW TO WITHDRAW RRSP FUNDS FOR THE HOME BUYERS PLAN

  • Complete Area 1 of the Canada Revenue Agency Form T1036.
  • Bring the form to a representative of your RRSP issuer. The representative will complete Area 2. The RRSP issuer will release the withdrawal funds to you without withholding tax.
  • At income tax time, you will receive a T4RSP tax slip which will show your withdrawal.
  • You must file your income tax return. Attach the T4RSP slip and also complete Schedule 7 – RRSP Unused Contributions, Transfers, and HBP or LLP Activities. Do not report your withdrawals on any other part of your income tax return.

REPAYING YOUR RRSP WITHDRAWALS FOR THE HOME BUYERS PLAN

You will start repaying the second year after your withdrawals. Each you, you are required to pay 1/15 of the total amount of the withdrawal. You must meet the minimum, but you can repay more each year if you would like. In that case, the payments will be recalculated based on the balance owning divided by the number of years remaining in your plan. If you fail to repay the required amount in a given year, you must declare the unpaid amount as RRSP income. You will be required to pay applicable taxes.

Even if you have no taxes to pay and no income to report, you must file an income tax return each year and complete Schedule 7.

Every year, your income tax Notice of Assessment or Notice of Reassessment will indicate the total amount you have repaid to your RRSPs; the balance remaining on your HBP withdrawals; and the amount you are required to repay the next year. The same information is found on the My Account tax service.

Any more questions? Call us at (905) 265-0246 or email at mortgages@thefinancialforum.ca. One of our representatives will be pleased to discuss the Home Buyers Plan with you.


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