The journey to homeownership in Canada can be both exciting and daunting, especially for first-time buyers. One of the most significant hurdles is gathering enough funds for a down payment. This is where the Home Buyers' Plan (HBP) comes into playa federal program designed to help Canadians tap into their Registered Retirement Savings Plans (RRSPs) to finance their first home purchase.
The HBP allows eligible individuals to withdraw up to $60,000 from their RRSPs tax-free to buy or build a qualifying home. While this can be a powerful tool in achieving homeownership, it comes with specific rules, obligations, and considerations that potential users should thoroughly understand.
This comprehensive guide answers the 40 most common questions about the Canadian RRSP Home Buyers' Plan. Whether you're considering the HBP, are in the process of making a withdrawal, or are already repaying your HBP balance, this article aims to provide clear, concise, and up-to-date information about the program:
1. What is the Home Buyers' Plan (HBP)?
The HBP is a federal government program that allows eligible Canadians to withdraw funds from their Registered Retirement Savings Plans (RRSPs) to buy or build a qualifying home. This withdrawal is tax-free, provided you repay the funds within a specified period.
2. Who is eligible to participate in the HBP?
To be eligible for the HBP, you must:
- Be a resident of Canada
- Be considered a first-time homebuyer
- Have a written agreement to buy or build a qualifying home
- Will occupy the home as your principal residence within one year of buying or building it
3. How much can I withdraw from my RRSP under the HBP?
As of April 16, 2024, you can withdraw up to $60,000 from your RRSP, which is an increase from the previous limit of $35,000. For couples, this means a potential total withdrawal of $120,000, so long as both people have sufficient RRSP funds and are eligible for the program.
4. How do I withdraw funds from my RRSP for the HBP?
To withdraw funds from your RRSP using the Home Buyers' Plan:
- Download and complete Form T1036, "Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP"
- Fill out Area 1 of the form (your financial institution will complete Area 2)
- Submit the form to your RRSP issuer
5. Do I have to pay taxes on the funds I withdraw under the HBP?
No, you don't have to pay taxes on HBP withdrawals if you meet all the conditions and repay the funds you withdrew from your RRSP within 15 years (following the post-withdrawal window).
6. What is the repayment schedule for the HBP?
You have up to 15 years to repay the amount withdrawn. Repayments typically start in the second year following the year of withdrawal. However, if you made a withdrawal from your RRSP account for the HBP between January 1, 2022, and December 31, 2025, you'll have five years before you need to start repaying.
Regardless of when you withdrew, you must repay at least 1/15th of the total amount you've withdrawn every year. If you withdraw $15,000 total, for instance, that means you owe $1,000 a year though, over-contributing one year decreases the minimum payment in forthcoming years.
7. What happens if I don't repay the amount withdrawn under the HBP?
If you don't repay the minimum required amount in a given year, the shortfall is added to your taxable income for that year. This means you'll owe taxes on that portion at your marginal tax rate.
8. Can I use the HBP more than once?
Yes, but there are restrictions. You may be able to participate in the HBP again if your HBP balance is zero before January 1st of the year you plan to make another HBP withdrawal, and you meet all other HBP conditions.
9. Can my spouse or common-law partner also withdraw from their RRSP under the HBP?
Yes, if both you and your spouse or common-law partner qualify as first-time homebuyers, you can each withdraw up to $60,000 from your respective RRSPs, for a total of $120,000.
10. What types of homes qualify under the HBP?
You can only buy a principal residence in Canada using the HBP, but the program covers a variety of options, including:
- Single-family houses
- Semi-detached houses
- Townhouses
- Mobile homes
- Condominium units
- Apartments in duplexes, triplexes, fourplexes, or apartment building
11. Can I use the HBP to build a home or only to buy an existing one?
Yes, you can use the Home Buyers' Plan (HBP) to either buy an existing home or build a new one.
12. Are there deadlines associated with the HBP?
Yes, there are several important deadlines to keep in mind:
- You must acquire the home or have it built by October 1st of the year following the year of withdrawal.
- If building, the home must be habitable by October 1st of the year after you make the withdrawal (so, if you withdrew on Jan. 1, 2025, then the home must be ready for move-in by Oct 1, 2026).
- You must intend to occupy the home as your principal residence no later than one year after buying or building it.
13. How does participating in the HBP affect my retirement savings?
While the HBP can help you buy a home sooner, it does affect your retirement savings:
- The funds withdrawn won't earn investment returns until repaid, potentially affecting your long-term retirement goals.
- You'll need to repay the withdrawn amount to your RRSP over 15 years, which may affect your ability to make net new RRSP contributions during that time.
- If you don't repay the required amount each year, that portion becomes taxable income, increasing your tax burden.
14. Can I use the HBP if I'm self-employed or have irregular income?
Yes, self-employed individuals and those with irregular income can participate in the HBP, provided they meet all other eligibility criteria. However, you should carefully consider whether you are capable of making repayments on schedule.
15. What if the home purchase falls through after I've withdrawn funds under the HBP?
If your home purchase doesn't go through after you've withdrawn funds, you have two options:
- Buy or build a replacement property before October 1st of the year following the withdrawal.
- Cancel your HBP participation by either repaying the full amount you withdrew to your RRSP, or including it in your taxable income for the year of withdrawal.
16. Can I participate in the HBP if I've owned a home in the past?
You may still qualify as a first-time home buyer if, in the four-year period prior to withdrawal, you did not occupy a home that you or your current spouse or common-law partner owned. This means if you've been renting or living in someone else's home for the past four years, you might be eligible for the HBP, even if you previously owned a home.
17. How does the HBP interact with other first-time homebuyer incentives?
The HBP can be used in conjunction with other programs like the First-Time Home Buyer Incentive or tax credits to save money on a home purchase. For example:
- You can use both the HBP and the First-Time Home Buyer Incentive to increase your down payment.
- You may be eligible for the First-Time Home Buyers' Tax Credit, which provides up to $1,500 in tax relief.
- You might also qualify for land transfer tax rebates in some provinces.
It's important to check the specific requirements for each program, as they may have different eligibility criteria.
18. What are the pros and cons of using the HBP?
- Pros:
- Access to tax-free funds for a down payment
- No interest on the withdrawn amount
- May speed up your entry to the housing market by years
- 15-year timeframe to repay RRSP withdrawal
- Cons:
- Reduced retirement savings and potential investment growth
- Obligation to repay the withdrawn amount over 15 years
- Potential tax implications if repayment requirements aren't met
- Affects your ability to make new RRSP contributions during the repayment period
19. What forms do I need to fill out to participate in the HBP?
The main form required is a CRA form titled: "Form T1036, Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP." You'll need to:
- Complete Area 1 of the form
- Submit the form to your RRSP issuer, who will complete Area Two
- Keep a copy of the completed form for your records
You'll also need to report HBP activities on Schedule 7 of your annual tax return.
20. Can I make RRSP contributions specifically for the HBP just before withdrawal?
Yes, you can make RRSP contributions specifically for use in the HBP, but you'll need to time them carefully:
- Any money you use for the HBP must have stayed in your RRSP for at least 90 days
- If you make a contribution to your RRSP less than 90 days before an HBP withdrawal, you may not be able to deduct that contribution from your taxes.
- It's generally advisable to plan your RRSP contributions well in advance of your intended HBP withdrawal to ensure eligibility and maximize tax benefits.
21. Are there any penalties or fees associated with the HBP?
There are no direct penalties or fees for participating in the HBP. However, there can be financial consequences if you don't follow the rules:
- If you don't repay the required annual amount, the outstanding amount is added to your taxable income for that year.
- If you don't use the withdrawn funds to buy or build a qualifying home within the specified timeframe, you might need to pay taxes on the entire withdrawal.
22. How does the HBP affect my income tax return?
The HBP has several implications for your income tax return:
- You must report your HBP withdrawal on your tax return for the year you make the withdrawal, but it's not included as taxable income if you meet all HBP conditions.
- Each year, you need to report your HBP repayments on Schedule 7 of your tax return. If you repay less than the required annual amount, the shortfall is added to your taxable income for that year.
- Keep track of your Notice of Assessment, which will show your HBP balance the amount you'll need to repay in the following year.
23. Can non-residents or newcomers to Canada use the HBP?
To use the HBP, you must be a resident of Canada at the time of the RRSP withdrawal and when buying or building the home. Recent immigrants, like those with PRs, may qualify if they meet all other HBP criteria. However, non-residents cannot participate in the program.
24. Is there an age limit for participating in the HBP?
It is safe to assume that the minimum age you need to be to participate in the program is 18. There is also an upper age restriction:
- During the year you turn 71, you must either convert your RRSPs to a Registered Retirement Income Fund (RRIF), or cash them out.
- This deadline also affects the HBP: you'll need to repay the withdrawn amount within the 15-year repayment period.
25. Can I use the HBP to help a related person with a disability buy a home?
Yes, you can use the HBP to buy or build a home for a related person with a disability, even if you're not a first-time homebuyer yourself. In this case:
- The home must be more accessible or better suited to the needs of the person with a disability.
- The related person with a disability must intend to use the home as their principal residence.
- The standard HBP withdrawal limits and repayment rules still apply to you as the RRSP owner.
26. What happens to my HBP obligations if I pass away or become disabled?
In the event of death:
- The remaining HBP balance becomes part of the deceased's income in the year of death.
- The estate or beneficiaries are responsible for paying the taxes on this amount.
In the case of disability: You should contact the CRA for guidance in this situation.
27. How does separation or divorce affect my HBP participation?
Separation or divorce can impact your HBP participation in several ways:
If you separate from your spouse or common-law partner, you may be able to re-qualify as a first-time homebuyer for the HBP, even if you previously owned a home with your former partner.
For withdrawals made after 2019, there are special provisions that may allow you to participate in the HBP even if you've owned a home in the past four years, provided you meet certain conditions related to the breakdown of your marriage or common-law partnership.
If you're in the process of repaying an HBP withdrawal and get divorced, your repayment obligations generally remain unchanged.
28. Can I use the HBP for an investment property or rental unit?
No, the HBP is intended for purchasing or building a principal residence only. You cannot use it for:
- Investment Properties
- Rental units (unless you plan to occupy a portion of the property as your principal residence)
- Vacation homes
The home must be intended as your principal place of residence within one year of buying or building it.
29. What if I move out of the home before fully repaying the HBP?
If you move out of the home before fully repaying the HBP:
- Your repayment obligations continue unchanged. You must still repay the withdrawn amount according to the original schedule.
- If you sell the home, you're still required to continue making HBP repayments.
- If you buy another home, you can't make another HBP withdrawal until your current HBP balance is zero and you meet all other eligibility criteria.
30. Can I repay more than the minimum annual HBP repayment amount?
Yes, you have the flexibility to repay more than the minimum annual amount:
- You can repay the full amount at any time without penalty.
- Making larger repayments can help you rebuild your RRSP savings more quickly.
- However, repaying more than the minimum doesn't reduce the 15-year repayment period; it just reduces the amount you'll need to repay in future years.
- To designate RRSP contributions as HBP repayments, you need to indicate this on Schedule 7 of your tax return.
31. How does the HBP affect mortgage qualification?
Using the HBP can positively impact your mortgage qualification:
- It allows you to increase your down payment, which can improve your mortgage term.
- A larger down payment may help you avoid or reduce mortgage default insurance premiums.
- However, lenders will also consider your ability to manage both mortgage payments and HBP repayments when assessing your application.
32. Are RRSP withdrawals under the HBP subject to withholding tax?
No, RRSP withdrawals made under the HBP are not subject to withholding tax, unlike regular RRSP withdrawals. This means:
- You receive the full amount of your HBP withdrawal.
- Your RRSP issuer will not withhold tax on withdrawn amounts of $60,000 or less.
- However, if you don't meet the HBP conditions or fail to repay as required, the withdrawal may become taxable, and you may owe taxes at your marginal rate.
33. Can I withdraw from a spousal RRSP under the HBP?
Yes, you can withdraw from a spousal RRSP for the HBP, but there are specific rules:
- The withdrawal is attributed to you (the annuitant), not your spouse (the contributor).
- You must meet all HBP eligibility requirements.
- The spousal RRSP is treated the same as an individual RRSP for HBP purposes.
- Be aware of the three-year attribution rule for spousal RRSPs, which may affect tax implications if you've received recent contributions from your spouse.
34. What alternatives exist if I decide not to use the HBP?
If you choose not to use the HBP or simply cannot qualify, you might be able to use the following alternatives to fund your home purchase:
- Tax-Free Savings Account (TFSA): Withdraw funds tax-free without repayment obligations.
- First Home Savings Account (FHSA): A new account type that combines tax-deductible contributions with tax-free withdrawals for first-time home buyers.
- Personal savings in non-registered accounts.
- Family gifts or loans.
- Government programs like the First-Time Home Buyer Incentive.
- A traditional mortgage with a smaller down payment (subject to mortgage insurance if under 20%).
35. How do I repay the HBP if I become a non-resident after withdrawal?
If you become a non-resident after making an HBP withdrawal:
- You must continue to make HBP repayments according to the original schedule.
- If you don't make the required repayments, the amount will be added to your income for that year and may be subject to non-resident withholding tax.
- You should consult with a tax professional to understand the full implications of your non-resident status on your HBP obligations.
- You must repay the HBP at a much faster rate than the original 15-year schedule.
36. Is the HBP a good option in the current economic climate?
The suitability of the HBP depends on individual circumstances and current market conditions:
- In a high-interest rate environment, using the HBP to increase your down payment could help reduce your mortgage amount and monthly payments though consider the additional RRSP re-payments you'll have to make.
- In a competitive housing market, having access to additional funds for a down payment might strengthen your offer.
- However, you should consider the long-term impact on your retirement savings and your ability to repay the withdrawn amount.
- Consult with a financial advisor to assess whether the HBP aligns with your overall financial strategy in the current economic climate.
37. Can I cancel my participation in the HBP after withdrawing funds?
Yes, you can cancel your HBP participation after withdrawing funds:
- If you don't buy or build a qualifying home, you can cancel your participation in the HBP.
- To cancel, you must repay the full amount withdrawn to your RRSP by December 31 of the year following the year of withdrawal.
- If you don't repay the full amount, it becomes taxable income in the year you received it.
- To cancel, complete Form RC471, "Home Buyers' Plan (HBP) - Cancellation," and send it to the CRA.
38. How do RRSP contribution limits affect my ability to use the HBP?
RRSP contribution limits don't directly affect your ability to withdraw under the HBP, but they can affect your overall strategy:
- You can only withdraw from funds already in your RRSP, so your past contribution room affects the amount available.
- Repayments to the HBP don't affect your RRSP contribution room, they're made in addition to your regular RRSP contributions.
- If you're planning to make RRSP contributions specifically for the HBP, ensure you have sufficient contribution room to avoid paying penalties for over-contributing.
39. What documentation is required when filing taxes after using the HBP?
When filing taxes after using the HBP, you'll need to:
- Keep your T4RSP slip, which shows the amount withdrawn under the HBP, for future submission to the CRA.
- Complete Schedule 7 of your tax return to report your HBP activity, including repayments or amounts included in income.
- Retain records of your home purchase, including the purchase agreement and closing documents.
- Keep track of your Notice of Assessment, which will show your HBP balance and required repayment amount for the following year.
40. Can I use the HBP if I co-own the property with someone who is not a first-time homebuyer?
Yes, you can still use the HBP even if you're co-owning with someone who doesn't qualify as a first-time homebuyer:
- Your eligibility is assessed individually, not based on the status of your co-owner.
- You can withdraw up to the maximum HBP amount from your own RRSP, regardless of your co-owner's situation.
- However, ensure that you meet all other HBP eligibility criteria, including the intention to use the property as your principal residence.
- Be aware that your co-owner won't be able to use the HBP if they don't meet the first-time homebuyer criteria.
Conclusion
The Home Buyers' Plan (HBP) is a valuable resource for many Canadians hoping to own a home. It allows the tax-free withdrawal of RRSP funds for a home purchase, which can significantly boost your down payment and potentially improve your mortgage conditions. However, as we've explored in this comprehensive guide, the HBP has specific rules, responsibilities, and long-term implications that require careful consideration.
Key takeaways from this guide include:
- The HBP allows eligible individuals to withdraw up to $60,000 from their RRSPs.
- Participants must repay the withdrawn amount over 15 years to avoid tax consequences.
- The program is primarily designed for first-time homebuyers, but there are exceptions.
- The HBP can interact with other first-time homebuyer incentives and has implications for your overall financial planning.
While the HBP can be an excellent tool, it's not the right choice for everyone. Your decision to use the HBP should take your individual financial situation, long-term goals, and current housing market conditions into consideration. It's always advisable to consult with a financial advisor or tax professional to understand how the HBP fits into your broader financial strategy.
Remember, the path to homeownership is unique for each individual. The HBP is just one of many tools available to help you achieve your goal. By understanding its benefits and obligations, you can make an informed decision about whether it's the right choice for your journey to owning a home in Canada.
