If you have an RRSP and you are planning on making a first-time home purchase, then making full use of the Home Buyers’ Plan is a great way to drum up some of the capital needed for a down payment.<\/p>\n
However, there are conditions of eligibility and repayment that must be considered when thinking about the Home Buyers’ Plan. Some financial advisers might recommend going with another source of capital such as a TFSA before withdrawing from your RRSP.<\/p>\n
Keep reading to see details on how the Home Buyers\u2019 Plan works, as well as information on the conditions and regulations associated with the Home Buyers\u2019 Plan.<\/p>\n
How Does The RRSP Home Buyers\u2019 Plan Work?<\/b><\/h2>\n
The first order of business if you plan on making use of the Home Buyers\u2019 Program is contributions to your RRSP. If you have no money to withdraw funds from your RRSP, then you won\u2019t be able to make use of the Home Buyers\u2019 Plan.<\/p>\n
There are also a few different criteria you must meet in order to qualify for the Home Buyers\u2019 Plan:<\/p>\n
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- You must reside in Canada<\/li>\n
- You must be a first-time home buyer. If you already own a house, then you will be ineligible. However, you might still qualify if you are assisting a disabled person in buying their first home.<\/li>\n
- If you have made use of the program before, then your balance must be at zero (all the money paid back) before you can make use of it again.<\/li>\n<\/ul>\n
As long as these criteria are met, then you should have no problem getting started with your Home Buyers\u2019 Plan. You will need to fill out a few forms in order to apply for the withdrawal, and it\u2019s best to read and understand everything before signing any papers.<\/p>\n
Notes From the Canada Revenue Agency<\/b><\/h2>\n
The Canada Revenue Agency mentions a few caveats<\/a> intended to make the experience more comfortable and expedient for everyone involved. Reading and understanding these notes is essential to having a comfortable experience participating in the program.<\/p>\n
The CRA will send you an annual Home Buyers\u2019 Plan Statement of Account. This statement will include information on your current balance, as well as the minimum amount that you will be required to repay in the following year.<\/p>\n
If your payments for a given year do not meet the minimum amount, then you are required to include the difference as RRSP income when you file your income tax return. The same applies if you make no payments whatsoever in a given year.<\/p>\n
Registered Retirement Savings Plan<\/b><\/h2>\n
A Registered Retirement Savings Plan<\/a> (RRSP) is a type of savings plan that allows Canadians to make tax-free contributions to a retirement portfolio that is registered with the Canadian government.<\/p>\n
Contributions to your RRSP are tax-deductible. However, if you participate in the Home Buyers\u2019 Program, contributions designated as HBP repayments cannot be deducted from your taxes. These are designated as repayments and not RRSP contributions.<\/p>\n
Contributions to an RRSP belonging to your spouse or common-law partner cannot be designated as HBP repayments. Likewise, you cannot designate amounts transferred to your RRSP that you have deducted or will deduct from your taxes.<\/p>\n
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Pooled Registered Pension Plan<\/b><\/h2>\n
Repayments made to a Pooled Registered Pension Plan can be designated as HBP repayments. However, like other types of HBP repayment, there are a number of conditions and other things to consider.<\/p>\n
First of all, like RRSP contributions, you cannot designate PRPP contributions if you deduct or will deduct said contributions from your income taxes. Contributions designated as repayments also do not count toward your RRSP income limit.<\/p>\n
Additionally, you cannot designate contributions that are transferred directly from an RPP, DPSP, RRIF, SSP, or another RRSP or PRPP. In other words, your contribution cannot come directly from other types of savings accounts.<\/p>\n
Pros and Cons of the Home Buyers\u2019 Plan<\/b><\/h2>\n
There are a number of both positive and negative aspects of a Home Buyer\u00a0Plan. If you are planning on buying a qualifying home for the first time, it is important to examine and consider every aspect of the HBP in order to know if it is right for you.<\/p>\n
Pros<\/b><\/h3>\n
The positive aspects of the Home Buyers\u2019 Plan are as follows:<\/p>\n
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- You have two years before you will be required to begin annual repayment.<\/li>\n
- It is possible to begin early payment at any time and with any amount.<\/li>\n
- The withdrawal is interest-free and is borrowed before tax, making it potentially more attractive than after-tax amounts.<\/li>\n
- The Home Buyers\u2019 Plan withdrawal is not technically considered a loan, so will not affect your credit score.<\/li>\n<\/ul>\n
Cons<\/b><\/h3>\n
There are also a few not-so-good points to consider if you are thinking about an HBP withdrawal:<\/p>\n
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- It is necessary for you to meet your annual repayment obligations. Otherwise, the missing repayments will be taxable income.<\/li>\n
- Funds withdrawn from your RRSP are obviously no longer invested in your portfolio, and you might miss out on some gains as a result.<\/li>\n
- The window for repayment is limited.<\/li>\n
- The program is mutually exclusive with the newly proposed First Home Savings Account. Buyers may not benefit from both programs.<\/li>\n<\/ul>\n
How To Withdraw From Your RRSP Under The Home Buyers\u2019 Plan<\/b><\/h2>\n
Withdrawals from RRSPs through the Home Buyers\u2019 Plan must be repaid. The repayments are mandatory after two years from the withdrawal date, and the entire withdrawal must be repaid within 15 years.<\/p>\n
In order to make repayments for your HBP, you must contribute to your RRSP, PRPP, or SPP during the year when the payment is due or in the first sixty days of the following year. Contributions may be designated in whole or part as repayment for your HBP.<\/p>\n
There are some limitations on contributions that cannot be designated as repayments. These include:<\/p>\n
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- Contributions to an RRSP belonging to your spouse or common-law partner<\/li>\n
- Transfers directly from another RRSP, PRPP, or SPP<\/li>\n
- Any contributions which you have deducted from your income tax<\/li>\n
- Any contributions already designated as a repayment for the previous year<\/li>\n<\/ul>\n
For more detailed information on the rules about applying for and repaying your HBP, you can visit the Canada Revenue Agency HBP page<\/a>.<\/p>\n
Making Repayment Contributions<\/b><\/h2>\n
As mentioned before, you have 15 years to repay the withdrawal under the HBP. These repayments start in the second year following the year when you withdraw the funds. If you withdraw funds in 2022, your repayment will start in 2024.<\/p>\n
In order to designate a contribution as an HBP repayment, buyers must fill out a Schedule 7, RRSP, PRPP, and SPP Unused Contributions, Transfers, and HBP or LLP Activities<\/a> form. Enter the amount of the repayment on line 24600 and attach it to your income tax return.<\/p>\n
It is important that if you are filing your taxes electronically, you keep copies of all the relevant documents in case you need to provide them to the CRA at a later date. These include copies of the forms you fill out as well as any supporting documents.<\/p>\n
Can I Make Early Repayments?<\/b><\/h3>\n
If at any time before your repayment is due you wish to make an early repayment, you may do so. In fact, you can repay the entire outstanding balance at any time you so choose. You will be sent a statement from the CRA detailing your remaining balance each year.<\/p>\n
The statement will also tell you:<\/p>\n
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- The amount that has been repaid so far<\/li>\n
- The remaining balance waiting to be repaid<\/li>\n
- The minimum annual repayment amount required for you to contribute and designate as payment for the following year<\/li>\n<\/ul>\n
Access to the Home Buyers\u2019 Plan After Breakdown of Marriage<\/b><\/h2>\n
In 2019, the rules were changed to account for HBP balances held by persons who have gone through a breakdown of a marriage or common-law partner. Thus, the HBP can be accessed by someone who has gone through such a breakdown if:<\/p>\n
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- The person lives separately from the spouse for a period of 90 days or more<\/li>\n
- The person begins living separately in the year of withdrawal or up to four years prior<\/li>\n
- The person is not currently living in their place of residence with a new partner or spouse<\/li>\n
- The person’s principal place of residence has been disposed of no later than 2 years after the end of the year of the withdrawal<\/li>\n
- The person has no outstanding HBP balance waiting to be repaid<\/li>\n<\/ul>\n
Canceling Your Home Buyers\u2019 Plan<\/b><\/h2>\n
After withdrawal, buyers may find themselves in a situation that makes them no longer eligible for the HBP. Under these circumstances, it is possible to cancel your program, and repay the outstanding balance within a limited repayment period.<\/p>\n
Buyers who simply wish to cancel their HBP despite continuing to meet the qualifying criteria may do so as long as they do not fulfill all of the criteria. This applies as long as the person did not buy or build a qualifying home, or they have become a non-resident of Canada.<\/p>\n
Buyers who withdrew funds to assist a related disabled person may also cancel their participation if they did not build or buy a qualifying home, or if they become a non-resident of Canada. For more information on program cancellation, you can visit this page<\/a>.<\/p>\n
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Tax Return Information for the Home Buyers\u2019 Plan<\/b><\/h2>\n
When you make a withdrawal from your RRSP through the HBP or Lifelong Learning Plan in the calendar year, you will receive a T4RSP showing the withdrawal.\u00a0 Income tax returns for 2021 will include withdrawals for 2021.<\/p>\n
Withdrawals from your RRSP and repayments to your RRSP related to the HBP or the Lifelong Learning Plan (LLP) are reported on Schedule 7 of your tax return.<\/p>\n
On your 2021 tax return, you can designate any payment you made into your RRSP between January 1, 2021, and March 1, 2022, as a repayment under the HBP or the LLP.\u00a0 Contributions to RRSPs cannot exceed the amount designated.<\/p>\n
Final Thoughts<\/b><\/h2>\n
The Home Buyers\u2019 Program is a great way for eligible first-home buyers to get some capital for a down payment on their first home. If you already have been making contributions to an RRSP, then you might want to look into the HBP as a way to get the capital you need.<\/p>\n
That being said, there are a number of criteria that an individual must meet in order to qualify. There are also a few regulations and stipulations regarding your repayment period that should be understood before attempting to make a withdrawal under the HBP.<\/p>\n