Summary
The Home Buyers' Plan (HBP) is a Canadian government initiative that allows first-time home buyers to withdraw up to $60,000 from their Registered Retirement Savings Plans (RRSPs) to purchase or build a home. The withdrawal is tax free but must be paid back over a period of 15 years.
If you're considering buying your first home in Canada, there are a number of incentives that you can take advantage of. Some involve significant planning, well in advance of your actual purchase so it’s best to start thinking about saving for your first home early. One in particular that you might have heard about is the Home Buyers' Plan (HBP), but what exactly is it? This blog will dive into the essentials of the HBP, helping you understand how you can leverage this program to make your home ownership dream a reality. If you’re interested in learning about the other incentives you can take advantage of, check out our full guide here.
What is the Home Buyers' Plan?
The Home Buyers' Plan (HBP) is a Canadian government initiative that allows individuals to withdraw funds from their Registered Retirement Savings Plans (RRSPs) to purchase or build a home. Designed primarily for first-time homebuyers, the HBP can be a powerful tool in your home-buying arsenal, enabling you to access up to $60,000 tax-free from your RRSP to put towards your home. It’s worth noting that the previous limit was $35,000 but the limit was increased to $60,000 as of April 16, 2024.
Home Buyers' Plan Eligibility Criteria
Like many other programs and incentives offered by the Canadian government, there are several criteria you must meet to participate in the Home Buyers' Plan. If you are making the withdrawals for the benefit of a relative with a disability, you are still the one that must meet the conditions.
Canadian resident: You must be a Canadian resident.
Written agreement in place: You must have a written agreement to buy or build a home in place.
Intent to occupy: You must intend to live in the qualifying home no later than one year after buying or building it.
First-time home buyer: You must be considered a first-time home buyer unless you meet specific criteria. In the following section, we’ll do a deep dive into what actually defines a first-time home buyer.
For a deep dive into the eligibility requirements, check out the CRA’s website.
What Defines a First-Time Home Buyer?
You qualify as a first-time home buyer if you have not owned a home, or had any ownership interest in a home, anywhere in the world, at any time during the last four years. This period is considered to ensure that individuals re-entering the housing market after a significant gap receive support and can take advantage of the incentives available.
How Does the Home Buyers' Plan Work?
Once you’ve determined if you are eligible for the Home Buyers’ Plan (HBP), the next step is to determine how much you want to withdraw. You can withdraw up to $60,000 individually or $120,000 as a couple - $60,000 each. The funds you withdraw must have been sitting in your account for at least 90 days, otherwise they’re not eligible.
The Home Buyers' Plan Withdrawal Process
To withdraw funds under the HBP, you'll need to fill out Form T1036 for each RRSP account you want to withdraw from. Submit this to your financial institution, and you can expect to receive the funds within a few days to a few weeks.
Repayment of the Home Buyers’ Plan Withdrawals
You have up to 15 years to repay the amount you withdrew under the HBP, starting the fifth year following your withdrawal. Each year, you must repay at least 1/15 of the total amount withdrawn; if you don’t, it will be taxed as income. While you must pay back at least 1/15 of the total amount each year, there are no limitations on the amount exceeding that total that you can pay back. In simpler terms, you can pay back the withdrawal as fast as you’d like.
Benefits of the Home Buyers' Plan
The main advantage of the Home Buyers’ Plan (HBP) is that it allows you to use pre-tax dollars to fund your down payment, potentially making a home purchase more achievable sooner than saving with after-tax dollars. Plus, the flexibility of repayment means you can manage your finances more freely without immediate pressure.
Considerations and Drawbacks
While the Home Buyers’ Plan (HBP) can be beneficial, it's important to remember that you are using your retirement savings for immediate home purchase needs. This means your retirement savings will not grow as quickly due to the reduction in invested funds. Additionally, failing to repay the borrowed amount on time results in having that year's repayment amount added to your taxable income for the year.
Summing It All Up
Saving up enough money to buy your first home is hard. Thankfully the government has implemented a number of financial incentives to help you along the way. The Home Buyers' Plan (HBP) is an excellent tool for first-time homebuyers, offering a tax-effective way to access funds for a down payment. Combined with the other incentives available, such as the First Home Savings Account, the HBP can make a very meaningful contribution to your down payment.
Once you’re ready to buy your first home, it’s important to loop in the expertise that you’ll need to support you on your journey. First, we recommend that you engage a real estate agent as they will be pivotal in providing you with important advice as you embark on the search. Once your real estate agent helps you land a property, you’ll need a real estate lawyer to help you with your closing. That’s where we at Doormat can support. We make the closing process simple with an easy-to-use app and knowledgeable team that are with you every step of the way. We also do it for a 25% lower price than average. Get started with Doormat today!
Share:
