RRSP for Buying Your Home. Are Your Eligible?
Capital-B Insights | December 15, 2024
Written by Miguel Laursen
RRSP Home Buyers’ Plan (HBP): A Guide for First-Time Homebuyers
Purchasing your first home is a major milestone. For Canadians, the RRSP Home Buyers’ Plan (HBP) offers a unique opportunity to tap into your Registered Retirement Savings Plan (RRSP) and turn your homeownership dream into a reality—without paying taxes on the withdrawn amount. This program provides financial flexibility for first-time buyers, helping ease the cost of purchasing or building a home.
Here’s everything you need to know about the HBP, including eligibility, how it works, and the repayment process. Let’s navigate this program together to see if it’s the right fit for your journey to homeownership.
Key Highlights
- Tax-Free RRSP Withdrawals: Access up to $60,000 (or $120,000 for couples) tax-free to buy or build your first home.
- Eligibility: Open to first-time homebuyers or those purchasing for a relative with a disability. The home must become your primary residence within one year.
- Flexible Repayment: Repay the withdrawn amount over 15 years, starting 2 years after withdrawal. Missed payments are taxable.
- Combines with Other Programs: Pair with programs like the FHSA or Home Buyers’ Tax Credit for added savings and benefits.
- Temporary Relief: Withdrawals made between 2022-2025 may qualify for a 5-year repayment grace period, offering more flexibility.
What Is the RRSP Home Buyers’ Plan (HBP)?
The Home Buyers’ Plan allows first-time buyers to withdraw up to $60,000 tax-free (or $120,000 for couples) from their RRSP to purchase or build a qualifying home. Think of it as an interest-free loan to yourself, with repayment spread over 15 years.
Whether you need funds for a down payment or other costs, the HBP lets you leverage your RRSP savings to boost your buying power. To keep withdrawals tax-free, you must repay the amount over time—starting two years after the withdrawal.
Pro Tip: If you withdraw funds under the HBP between January 1, 2022, and December 31, 2025, you may qualify for a temporary extension, giving you five years before repayment begins.
Who Is Eligible for the HBP?
The HBP is designed for first-time homebuyers or individuals buying a home for a relative with a disability. Here are the key eligibility criteria:
- Residency: You must be a Canadian resident from the time of withdrawal until you purchase or build your home.
- First-Time Homebuyer Status: You (or your spouse/common-law partner) must not have owned a home within the past four years.
- Principal Residence: The property must be your primary residence within one year of purchase.
- Written Agreement: A written agreement to purchase or build a qualifying home is required.
If you’ve previously used the HBP, you may be eligible to participate again once the balance is fully repaid.
How Much Can You Withdraw with the HBP?
Under the HBP, individuals can withdraw up to $60,000, while couples can withdraw a combined total of $120,000. To qualify, your RRSP contributions must have been in the account for at least 90 days before withdrawal. This increased limit helps address Canada’s rising housing costs, offering first-time buyers a stronger financial foundation.
How Does the HBP Work?
Accessing funds through the HBP is straightforward. Follow these steps:
- Complete Form T1036: Fill out the “Home Buyers’ Plan Request to Withdraw Funds” form and submit it to your RRSP provider.
- Withdraw Funds: You can make multiple withdrawals, but they must all occur in the same calendar year as your first withdrawal (or by January of the following year).
- Purchase or Build: Ensure your home is purchased or built by October 1 of the year following your first withdrawal.
- Receive Tax Slip: Your RRSP issuer will provide a T4RSP slip confirming the withdrawal amount for tax reporting purposes.
Repaying Your RRSP Under the HBP
Repayment begins two years after the withdrawal, and the total amount must be repaid within 15 years. Annual repayment amounts are calculated by dividing the withdrawn amount by 15. For instance:
- If you withdraw $60,000, your annual minimum repayment is $4,000.
If you miss a repayment, the unpaid amount will be added to your taxable income for that year. To stay on track, consider repaying more than the minimum when possible—it reduces future obligations and supports long-term savings.
Good to Know: HBP repayments don’t affect your RRSP contribution room, allowing you to continue building your retirement savings.
Pros and Cons of the HBP
Pros
- Interest-Free Loan: Access your RRSP savings without paying interest or taxes upfront.
- Increased Affordability: Boost your down payment or cover closing costs with tax-free funds.
- Flexible Repayment: Repay over 15 years, starting two years after withdrawal.
Cons
- Impact on RRSP Growth: Withdrawals reduce your investment growth potential.
- Repayment Obligations: Missed payments are taxable and could affect your finances.
- Eligibility Restrictions: Limited to first-time buyers or purchases for a relative with a disability.
Maximizing the HBP with Other Programs
The HBP can be combined with other first-time homebuyer programs for greater financial impact:
- First Home Savings Account (FHSA): Save up to $40,000 tax-free for your first home and pair it with the HBP.
- Home Buyers’ Tax Credit: Claim up to $10,000 on your tax return for a rebate worth $1,500.
- GST/HST New Housing Rebate: Recover a portion of the taxes paid on a new or substantially renovated home.
Explore additional provincial and municipal programs that offer incentives for first-time buyers.
Frequently Asked Questions
What is the withdrawal limit?
Up to $60,000 per person or $120,000 per couple.
Who qualifies as a first-time buyer?
Those who haven’t owned a home in the past four years.
How long do I have to repay?
Repayment spans 15 years, starting two years after withdrawal.
What happens if I miss a repayment?
The unpaid amount is added to your taxable income for that year.
Can I use the HBP and FHSA together?
Yes, combining these programs can maximize your savings.
Is the HBP Right for You?
The RRSP Home Buyers’ Plan offers a valuable lifeline for first-time buyers, providing tax-free access to your savings when you need it most. While it’s a powerful tool for increasing affordability, consider the long-term impact on your retirement savings and ensure you’re comfortable with the repayment requirements.
If you’re ready to take the first step toward homeownership, Capital-B’s expert advisors can help you navigate the HBP and explore additional resources to achieve your goals. Let’s make your dream home a wise investment.
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