Under the Home Buyers’ Plan (HBP), you and your spouse can withdraw up to $25,000 from an RRSP to buy or build a home. The HBP withdrawal limits were increased to $25,000 from $20,000 as part of the 2009 Budget. Unlike regular withdrawals from an RRSP, withdrawals that meet all applicable HBP conditions do not have to be included in your income and the RRSP administrator does not have to withhold tax on these amounts. However, you do have to repay all HBP withdrawals to your RRSPs within a period of no more than 15 years. If you fail to make the required repayments, the amount of the missed payment is included in your taxable income for the year.
You can only withdraw funds from an RRSP of which you are registered owner. Some RRSPs, such as locked-in or group RRSPs, do not allow withdrawals and funds in these plans cannot be accessed under the HBP.
When you withdraw funds from your RRSP under the HBP, you create an HBP balance. The HBP balance at any point in time is calculated as:
- the total of all eligible withdrawals that you made from RRSPs under the HBP
- the total of all amounts that you designated as an HBP repayment or that were included in your income because you failed to repay the required amounts to the RRSPs in previous years
The Home Buyers’ Plan has become extremely popular. In one survey, 40% of first-time buyers planned to use the plan. Each spouse or common-law partner can withdraw $25,000 under the HBP for a cumulative total for the couple of $50,000. Common-law partners, relatives, and friends can also qualify, as long as they become joint owners.
Example: Three friends, Millie, Geo, and Bot, purchased a new house together as tenants-in-common. They each were able to withdraw $25,000 from their respective RRSPs under the HBP to raise a cumulative down payment of $75,000, calculated as ($25,000 × 3).
Having access to these retirement savings has allowed many people to assemble their down payments and reduce their mortgage costs, enabling them to buy homes that they might otherwise never have been able to afford.
A number of conditions have to be met to participate in the HBP. Some conditions have to be met before you can withdraw funds from your RRSP under the HBP, while others apply at the time of, or after, the withdrawal.
For more information on the HBP, click here to link to the CRA Web site.
Who is a first-time home buyer?
Most participants in the HBP must qualify as a first-time home buyer. In fact, the term “first-time home buyer” for the purpose of the HBP is misleading because you may be able to use the program during the purchase of your second, third, or even tenth home. A first-time home buyer refers to a person and their spouse who has not owned a home that they have occupied as their principal residence at any time during the period beginning January 1st of the fourth year before the year of the withdrawal and ending 31 days before the withdrawal.
Example: Bert wants to participate in the HBP this year by making a withdrawal from his RRSP on October 31, 2012, to fund a new home purchase. To be considered a first-time homebuyer, neither Bert nor his partner, Ernie, could have owned and occupied another home as their principal residence at any time beginning January 1, 2008 and ending September 30, 2012.
In addition, you must be a resident of Canada when you receive funds from the RRSP under the HBP, and up to the time a qualifying home is bought or built.
If you would like to learn more about the Home Buyer’s Plan and can’t wait for the next blog posts or would like to learn how to pay off your mortgage faster, call me at 613.286.6841 or e-mail me email@example.com.
The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice (preferably me) before making any decision in relation to your particular requirements or circumstances.