About the Home Buyers Plan
The Home Buyers Plan (HBP) is a Canadian federal government program which helps Canadian residents buy a home for the first time. With the Home Buyers Plan you can take up to $25,000 out of your Registered Retirement Savings Plans (RRSPs) without having to pay taxes on the funds if you are buying your first home. If you buy a home with your spouse or another person you could both withdraw $25,000 under the plan. The plan can also be used to buy a home for a relative who is disabled, although the conditions are slightly different.
Starting two years after your withdrawal, you get 15 years to repay the money to your RRSPs without incurring taxes. If you don't pay back the required amount in any year, then it is considered taxable income for that year. You can pay back at a faster rate if you wish. The repayments do not affect your RRSP contribution limit for a given year.
There are quite a few conditions for the Home Buyers' Plan, but they are reasonable and some are even lenient.
Who is Eligible for the Home Buyers Plan
To be eligible to withdraw money from your RRSPs under the Home Buyers Plan:
- you must be a Canadian resident
- you must be the plan owner of the RRSP(s)
- you must have a written agreement to buy or build a home
- you can't own the home for more than 30 days before you withdraw the money
- you must intend to occupy the home as your principal place of residence less than a year after your make your withdrawal
- you must not have a balance left from previous participation in the Home Buyers Plan
- you must be a first-time home buyer. You are considered a first-time home buyer as long as you or your spouse or common-law partner has not owned a house as your principal place of residence for four years beginning January 1 of the fourth year before the year you withdraw the funds.
RRSPs Eligible for the Home Buyers Plan
Locked-in RRSPs and group plans do not allow withdrawals. The best thing to do is to check with the issuer(s) of your RRSPs to find out which of your RRSPs you will be able to use for the Home Buyers Plan.
Homes Eligible for the Home Buyers Plan
Just about all homes in Canada qualify for the Home Buyers Plan. The home you buy can be either a resale or a newly built home. Townhouses, mobile homes, condos, and apartments in duplexes are all fine. With cooperative housing, a share that gives you an equity interest qualifies, but one that only gives you a right to tenancy does not.
How to Withdraw RRSP Funds for the Home Buyers Plan
The process of withdrawing RRSP funds is quite simple:
- Fill in Area 1 of the Canada Revenue Agency Form T1036.
- Take the form to a representative of your RRSP issuer and have him/her fill in 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 have 15 years to repay the amount you withdrew from your RRSPs. Repayment starts the second year after your withdrawals. Each year you have to repay 1/15 of the total amount you withdrew. You can repay more each year if you like. In that case you would be required to pay the balance owing divided by the number of years left in your plan. If you don't repay the amount required, then you must declare the unpaid amount as RRSP income and pay applicable taxes.
You must file an income tax return each year, and complete Schedule 7, even if you have no taxes to pay and no income to report.
Each year, your income tax Notice of Assessment or Notice of Reassessment will include the amount you have repaid to your RRSPs for the Home Buyers Plan, the balance left, and the amont you have to repay the next year. You can also find out the same information using the My Account tax service.
More on the Home Buyers Plan
For detailed information on the Home Buyers Plan see the Canada Revenue Agency Guide Home Buyers' Plan (HBP). The guide includes information on the Home Buyers Plan for people with disabilites, and for those who are buying or helping to buy a home for a relative with a disability.
If you're planning to become a first-time home buyer, you might also be interested in the First-Time Home Buyers Tax Credit (HBTC).