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Home Buyers’ Plan (HBP) - financialplanners. - canada home buyers plan

Home Buyers’ Plan (HBP) - financialplanners.-canada home buyers plan

Home Buyers' Plan (HBP)
Generally, funds withdrawn from a registered retirement saving plan (RRSP) are included in
income and subject to tax in the year of withdrawal. However, there are certain provisions
that permit the withdrawal of funds from an RRSP without the resulting tax consequences.
One such provision is the Home Buyers' Plan (HBP) which allows a Canadian resident to
withdraw up to $35,000 (increased from $25,000 to $35,000 per individual for real estate
acquired after March 19, 2019 as per the 2019 Federal Budget) from their RRSP on a tax-
free basis in order to buy or build a qualifying home. Withdrawals from an RRSP that meet
all applicable HBP conditions are not reported as income on your tax return or subject to
withholding taxes in the year of withdrawal.
To initiate a Home Buyers Plan withdrawal, you must complete Form T1036, Home Buyers'
Plan (HBP) Request to Withdraw Funds from an RRSP.
Home Buyers' Plan (HBP)
The basics The 2019 Federal Budget expanded the definition to
include spouses living separate and apart as a result
The HBP allows you and your spouse or common-law partner of the breakdown of their marriage or partnership to
(collectively referred to as "spouse") to each withdraw up to provide additional access to their RRSP funds to help
$35,000, tax-free, from your respective RRSPs. them maintain home ownership. The changes would allow
The funds withdrawn may be used towards a down former spouses who would not otherwise qualify for the
payment on the property or to help offset costs such as HBP to now be eligible, subject to three conditions:
legal or moving fees. There are no restrictions on how The homebuyer must have been living apart from
the funds are used, only how they can be accessed their spouse or common-law partner due to marriage
and how they must be subsequently repaid. breakdown for at least 90 days and be living apart
You can make more than one withdrawal as long as the when the withdrawal is made. They must have
total of all withdrawals does not exceed $35,000 and are started living apart in the calendar year in which the
completed within the same calendar year. The monies withdrawal is made or any time in the previous four
that are withdrawn from the RRSPs under the HBP must be calendar years.
paid back each year over a period of 15 years beginning The homebuyer's principal residence cannot be
in the second year following the year of withdrawal. If a owned or occupied by a new spouse or common-law
payment is not made in a particular partner.
year it will be included in your income for that year and
taxed accordingly. The homebuyer's previous home is either sold or the
homebuyer has acquired the spouse's interest by
If you are the annuitant of a spousal RRSP, you may make the end of the second calendar year after the HBP
an eligible HBP withdrawal from that plan without the withdrawal.
attribution rules applying. The repayment can be made to
any RRSP, including the spousal RRSP, of which you are the
annuitant of the plan. Other conditions that must be met
to participate in the HBP include:
Conditions for participating in the HBP
You must enter into a written agreement to buy or
In order to participate in the HBP you must be a "first- build a qualifying home before withdrawing funds
time home buyer". You would not be considered a first- (i.e. a signed agreement of purchase and sale).
time home buyer if you or your spouse have owned Obtaining a pre-approved mortgage does not
and lived in a home as a principal place of residence satisfy this condition.
at any time within the four previous calendar years You must intend to occupy the qualifying home as
and ending 31 days before your HBP withdrawal. your principal place of residence no later than one
Example: year after buying or building it.
In 2015, John lost his job, sold his principal residence You must make all withdrawals in the same calendar
which he was occupying and moved into a rented year up to and including end of January of the following
apartment. In 2017, he got a lucrative job as a senior year. Any amount withdrawn after January of the following
engineer with the city. In September 2019 John would year will not be an eligible withdrawal under the HBP
like to participate in the HBP and withdraw funds from and you will have to include it in your income.
his RRSP for the purchase of a new principal residence. A regular RRSP contribution made during the 89-day
Since John owned and occupied his home during the period prior to the HBP withdrawal may not be deductible
period beginning January 1 of 2015 (the fourth year in whole or in part if the withdrawal includes all or of
before the year he wants to make the withdrawal (2019), the contributions made during the 89-day period before
he would not be considered a first time-home buyer. the HBP withdrawal. In this situation, you should wait
He should therefore wait until 2020 in order to qualify. 90 days after the last contribution to your RRSP before
Home Buyers' Plan (HBP) making your HBP withdrawal. 2
Example: Repayment of your HBP withdrawals
Jennifer, is a Canadian resident who has never owned Generally, you have to repay at least 1/15th of the original
a home as a principal residence. Her RRSP at the HBP balance each year beginning in the second year
beginning of 2020 was worth $25,000. She intended following the withdrawal. However, you may repay more
to withdraw $35,000 under the HBP in April 2020. She than the required minimum which will reduce future
topped up her RRSP by contributing her maximum minimum repayments. Your Notice of Assessment (NOA)
2019 allowable RRSP room of $12,000 on February 28, sent by CRA each year will indicate the minimum amount
2020. She then withdrew $35,000 in April 2020 under that must be repaid in the next year as well as the total
the HBP. Since the fair market value of her withdrawal balance remaining to be repaid.
included part of the contribution made during the 89-
day period just before the HBP withdrawal, Canada If you repay less than the minimum amount
Revenue Agency (CRA) would deny the deduction for required in a particular year, you will have
$10,000 of the $12,000 RRSP contribution.
to include the difference as RRSP income
In addition to not being able to claim the deduction on
that portion of the contribution, she also forfeits the in that year.
RRSP room. In order to reap the maximum benefit of
the HBP, Jennifer should either: Example:
Wait until May 29, 2020 (90 days after the
Michael signed an agreement of purchase and sale
contribution) or later, before making the HBP
in January 2020 to buy a new home. In February 2020
he withdrew $20,000 from his RRSP and completed
withdrawal; or Form T1036.
Withdraw $25,000 as planned and defer the Since Michael made the withdrawal in 2020 he has
withdrawal of the balance until 90 days following a 1 year grace period before payments start. Hence,
her contribution. he must repay $1,333 (1/15th of $20,000) to his RRSP
If any of the above conditions are not met either in 2022 or the first 60 days of 2023. If he repays only
before or after the HBP withdrawal, you risk the inclusion $1,000, he will have to include $333 in income for 2022
of the withdrawn funds in your income for that year. and pay tax on that amount. He would still be required
to pay $1,333 (1/14th of $18,667) for the year 2023.
HBP for a related person with a disability On the other hand, if Michael repays $10,000 in 2022
If you are a person with a disability or a relative of instead of the minimum required, this will reduce, but not
a person with a disability (related by blood, marriage, eliminate, his obligation to continue paying the balance
common-law partnership or adoption) and you utilize in later years until the withdrawal is nil. In this case his
the HBP withdrawal for one of the following: minimum repayment in 2023 or by March 1, 2024 will be
$714 (1/14th of the balance of $10,000).
to buy or build a home that is more accessible
or better suited to your needs; You will not receive an RRSP deduction for your HBP
repayments, and instead will claim the contribution as
to buy or build a home for a disabled person a HBP repayment using Schedule 7 when filing your
and the home is more accessible or better suited tax return. If you repay less than the minimum amount
to the needs of that person; or required in a particular year, you will have to include the
to give the funds to a disabled person to buy difference as RRSP income in that year.
or build a home that is more accessible or better To proceed with the repayment you would first make the
suited to the needs of that person. contribution to your RRSP account, whether as a lump-sum
or in periodic payments throughout the year. When you file
Home Buyers' Plan (HBP) 3