The Home Buyers’ Plan – What You Need to Know
Jeff Chapman, CFP®
It used to be that death and taxes were the two certainties in life.
The way that things have been going, however, we might have to add a third item to that list: a hot GTA housing market.
Despite the economic slowdown, the rise in house prices has not abated. A somewhat ludicrous example of this surfaced this past week when a dilapidated garage in Toronto went on the market for $729,000.
While great news for current homeowners, it’s also making it more difficult for people to afford a down payment on a home of their own.
One avenue to explore – borrowing from your RRSP – is popular. Known as the Home Buyers’ Plan (HBP), this program allows you to withdraw up to $35,000 from your RRSP, tax-free.
Let’s dig in to the basics of the Plan, along with some key points to consider if you are thinking about utilizing the Plan.
Can everyone use this plan?
You must qualify as a first-time homebuyer to participate in the plan. Key criteria to qualify include:
- Must be a Canadian resident.
- You must have a written agreement to buy or build a qualifying home.
- You intend to occupy said qualifying home as your principal residence within one year of buying or building it.
Can I access money from my coporate pension plan?
You can only draw from individual RRSP accounts that you hold at financial institutions, as well as your group RRSP (if eligible).
It’s important to note that the total amount available for the HBP is $35,000 and NOT $35,000 per RRSP account.
Do I have to repay the money?
The HBP is considered to be a loan from your RRSP and must be paid back. Participants are given two years of grace and then must repay the loan over the next 15 years.
Let’s say you purchase a house in 2021 and use $30,000 of your RRSP to assist with the down payment. Beginning in 2023, you must repay 1/15 of the loan (or $2000).
A few items to note here:
- If you do not make the necessary RRSP contribution, any difference is added to your taxable income. In the above example, $2000 is required in 2023. If the individual only contributes $1250 to their RRSP, the difference ($750) is added to their 2023 taxable income.
- You can contribute more than what’s required. In this case, the annual minimum repayment over the remaining period will be adjusted. So, if that individual decided to allocate $16,000 in 2023, their go-forward minimum repayment would be $1000 ($30,000 - $16,000 = $14,000/14 years - $1,000/year)
- Any RRSP contribution that you allocate towards HBP repayment will not be eligible to reduce your taxable income in that year.
Key Points to Consider
Now that we’ve covered off the basics, here are a few key points to consider.
30 Day Limit
The HBP is time sensitive. You must make the withdrawal within 30 days of taking ownership of the qualified property. You are no longer eligible for the HBP if more than 30 days have passed.
The 90 Day Rule
Any money that you withdraw for the HBP has to have been in your RRSP for at least 90 days. If not, it does not qualify for the HBP.
This rule prevents someone from making a lump sum deposit into their RRSP, obtaining the corresponding reduction in their taxable income and then withdrawing from the RRSP via the HBP.
Twice as nice!
If your spouse (or common-law partner) also qualifies to be an HBP participant, each of you can withdraw up to $35,000 from your respective RRSPs. This would give you a total of up to $70,000 to use for a down payment.
Not in the Spouse’s House
Perhaps your spouse (or partner) did not qualify for the HBP as they already own a house. Keep in mind that your eligibility in the HBP might be affected by this.
If your primary residence was a house owned by your spouse/partner, then you are no longer eligible for the HBP.
I am all too aware of this fact as it happened to me. I would have qualified for the HBP but for the fact that I lived with my fiancée (in a condo she owned) for 2 years. This made me no longer eligible for the HBP.
Primary not Secondary
The HBP is designed to be used for your principal residence. As such, you cannot use it for a cottage or a rental property.
If you are looking for more detailed information on the HBP, the Canada Revenue Agency has a great resource page.