First Time Home Buyers Plan (HBP)
Buying your first home is an exciting milestone, and the First Time Home Buyers Plan (HBP) can help make it more affordable by allowing you to use your Registered Retirement Savings Plan (RRSP) funds toward your purchase. The HBP lets you withdraw money from your RRSP without immediate tax consequences, as long as you repay it over time. This post explains how the plan works, the rules you need to follow, and how to make the most of this helpful program.
Understanding the First Time Home Buyers Plan
To fully understand how the First-Time Home Buyers Plan works, it’s helpful to have a basic knowledge of a Registered Retirement Savings Plan (RRSP). For more details on RRSPs, please visit our blog post What is an RRSP?
What is the Home Buyers Plan?
The HBP is essentially a loan you make to yourself by withdrawing funds from your RRSP account.
As of April 2024, you can withdraw up to $60,000 per person from your RRSP to put towards your first home purchase.
There is no tax withheld on this withdrawal; however, the funds must be repaid in minimum annual amounts over 15 years, with 1/15th of the total withdrawal paid back each year.
Unlike regular RRSP contributions, these "repayments" count only toward repaying the HBP loan and cannot be claimed on your income tax return to reduce your taxable income.
Rules for making a Home Buyers Plan withdrawal
The home you purchase must become your principal residence.
Both you and your spouse can participate in the HBP, allowing each of you to withdraw up to $60,000 from your own RRSP accounts — for a combined maximum withdrawal of $120,000. The home must be intended as the principal residence for both of you.
Under certain circumstances, you may use the HBP withdrawal to buy or build a home for a specified disabled person.
You cannot have owned a home or lived in a home owned by your spouse during any of the previous four calendar years before the withdrawal.
The home must be located in Canada.
Before withdrawing, you need a written agreement to buy or build a home. You must acquire the home by October 1st of the year following the withdrawal.
You must repay the withdrawn amount to your RRSP over the next 15 years, starting in the second calendar year after the withdrawal.
Payments are due within 60 days after the end of each year. If you miss a payment, the unpaid amount is added to your income for that year and taxed at your highest marginal tax rate.
If you make an RRSP contribution within 90 days before your withdrawal, that contribution will not be deductible if the funds were intended for the withdrawal.
Each year, the Canada Revenue Agency (CRA) will provide an annual statement showing your minimum repayment requirement. You can use this statement to help file your tax return. This information is also accessible by logging into your CRA My Account.
Financial Planning advice for using the Home Buyers Plan
Assess your RRSP contributions early
Before planning to withdraw from your RRSP under the HBP, make sure you have enough funds accumulated. Contribute regularly to your RRSP well in advance, as contributions made within 90 days before your withdrawal won’t be deductible if used for the HBP.Set a realistic budget for your home purchase
Consider not just the maximum withdrawal amount ($60,000 per person), but also your down payment needs, closing costs, moving expenses, and emergency funds. The HBP can help, but don’t rely solely on it.Plan your repayment schedule
The repayment period is 15 years, with minimum payments due annually. Make a repayment plan early so you don’t miss payments, which could result in added taxes.Maintain an emergency fund outside your RRSP
Don’t drain your funds completely; keep some savings liquid for unexpected expenses. Remember, the HBP money must be repaid, so avoid making withdrawals you cannot repay comfortably.Consider tax implications
Missing repayments will add the unpaid amount to your taxable income for the year. Factor this into your tax planning to avoid surprises.Use the CRA tools
Keep track of your HBP repayments through the CRA My Account portal. Regularly check your statements to ensure you’re on track.Get Professional Advice
Consider consulting with a financial advisor or tax professional who can help tailor your home buying and repayment strategy to your overall financial goals.
The Home Buyers Plan (HBP) should not be confused with the First Home Savings Account (FHSA). While they both offer tax advantages, they work quite differently. A HBP and FHSA can be used in combination to fund your home purchase. For more information on the FHSA please visit this link
Need help with Financial Planning?
Navigating the Home Buyers Plan and planning your first home purchase can feel overwhelming, but you don’t have to do it alone. Whether you need help understanding your RRSP options, setting up a repayment strategy, or creating a full financial plan, we’re here to help.
Reach out to us today for personalized guidance and make your first home purchase a confident and informed step forward.
TL;DR:
The First-Time Home Buyers’ Plan (HBP) allows you to withdraw up to $60,000 from your RRSP (per person) tax-free to help buy your first home. You must repay the amount over 15 years, or any missed payments will be taxed. Both you and your spouse can participate for a combined total of $120,000, if you meet eligibility rules, like not owning a home in the last 4 years.
Use the HBP wisely by budgeting carefully, contributing to your RRSP early, planning your repayment schedule, and keeping an emergency fund. You can also combine it with the First Home Savings Account (FHSA) for even more tax advantages.
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