What is the Home Buyers’ Plan?
The Home Buyers’ Plan lets you withdraw up to $35,000 from your RRSP to buy or build your first home in Canada – either for yourself or a relative with a disability. Couples (legally married or common-law) can withdraw up to $35,000 each, for a total of $70,000 towards the same home purchase. When you withdraw this amount, it’s like you’re borrowing from your RRSP. You’re expected to repay the withdrawn funds within a specific period of time. Otherwise, taxes will apply.
Who qualifies as a first-time home buyer in Canada?
To qualify as a first-time home buyer, neither you nor your current spouse or common-law partner has owned a home in the four-year period leading up to the withdrawal. However, you don’t have to meet this requirement if you have a disability or if you’re making a withdrawal under the HBP for a relative with a disability. See the Canada Revenue Agency’s rules: Persons with disabilities.
Other conditions may also apply, including the following:
- you must live in the home, as your primary residence within one year of acquiring it and
- neither you or your spouse or common-law partner purchased the home more than 30 days before the withdrawal.
For a complete list of requirements, please consult with a qualified tax advisor.
Do you have to pay back withdrawals made under the Home Buyers’ Plan?
Yes, you must repay withdrawals made under the HBP within a 15-year period; otherwise, taxes will apply. You don’t have to pay income taxes on the money you take out of your RRSP if you make HBP repayments within the specified timeframe. You can make repayments to any of your RRSPs, a Pooled Registered Pension Plan (PRPP) or a Specified Pension Plan (SPP) within that 15-year period.
When does the Home Buyers’ Plan repayment start?
The 15-year repayment period begins two years after the calendar year in which you make the withdrawal. For example, let’s say you pull money out in 2022. In this case, you’ll have to start making repayments by the end of 2024 or within the first 60 days of 2025. If you don’t make the minimum repayment, you’ll have to include the portion of the amount you didn’t repay as income on your tax return.
What other options do you have for buying a house?
If you’ve saved money in a tax-free savings account (TFSA), you can choose to use that money towards your new home instead of withdrawing from your RRSP under the HBP. Or, you can use your TFSA in combination with your HBP withdrawals to buy or build a home. However, it’s important to note that HBP withdrawals can’t be combined with withdrawals from the Tax-free First Home Savings Account (FHSA). Connect with an advisor to find out which option is right for you.
