Understanding the Home Buyers’ Plan: 10 Questions Answered

Canada’s Home Buyers’ Plan is a financial tool designed to make first-time home ownership more accessible. The program is of interest to those who look to benefit from tax deductions as they save for their first home, as well as those who wish to leverage current RRSP savings to buy or build one. There are limits, however, to who qualifies and the amount they qualify for. In some cases, those who qualify to participate may not even benefit from doing so. Let’s address ten common questions about the Home Buyers’ Plan. 

How Does the Home Buyers’ Plan Work? 

The HBP allows you to make a tax-free withdrawal from your registered retirement savings plan (RRSP) to buy or build a qualifying home. With housing prices being what they are, it’s a great way to cover your down payment

What are the Financial Benefits of the HBP Program? 

Contributing to your RRSP savings enables you to take advantage of a tax benefit while you’re saving for your home. This will allow you to grow your savings more quickly. Then, when it’s time to deduct the money in order to make a down payment on your home, you’ll be able to do so tax-free. 

What’s the Catch? 

You have to pay your RRSP account back for the amount you withdrew. After a two year grace period you’ll be obligated to repay 1/15th of the total amount annually, ensuring that it’s been completely repaid within 15 years. If, for example, you withdrew $30,000, you’ll have to make minimum annual contributions of $2,000 to your RRSP account. You may choose to think of this as a 15 year loan to yourself that you are able to repay interest-free. 

Does the Home Buyers’ Plan Have a Limit? 

There is a $35,000 limit to the amount an individual is able to deduct tax-free from their RRSP account when purchasing a qualifying home. A spouse, however, can also deduct $35,000 from their own RRSP account, allowing couples to access a total of $70,000.

Do You Have to be a First-Time Home Buyer to Participate in the HBP? What does that Mean? 

The program is only available to first time home buyers. To qualify, you may not have lived in a home that you owned for the past four years (dating back to Jan 1 of the fourth year prior to the year you buy your new home). You may also not have lived in a home owned by your spouse during that time period.

There is an exception, however, allowing homeowners to participate when purchasing a home for a relative with a disability. 

What About Spousal Breakups?

Several years ago a provision was added which allows a person to qualify when their marriage or common law relationship has dissolved. In such cases a person will qualify, even if they had previously owned a home, provided that they have lived apart from their spouse or common law partner for at least 90 days as a result of a breakdown in their marriage or common law partnership. 

Can the HBP Program be Used to Purchase a Rental Property? 

No. The purchaser of the house must intend to occupy the home as their principal place of residence within one year after buying or building it. In cases where the home is being purchased for a relative with a disability, that person must make it their principal residence. 

Are There Any Other Limitations? 

The money must have been in the RRSP account for a minimum of 90 days before it can be accessed through the program. (Don’t try to put it in there on Monday and yank it on Friday).

The program participant must also be a resident of Canada at the time of withdrawal and up to the time when the home is bought or built. 

Finally, the house must be bought or built by Oct 1 of the year after the withdrawal. 

Is the Home Buyers’ Program a Good Idea for Everyone? 

While the program is helpful to many, it may not be for everyone. In just one example, the HBP can be great to decrease taxable income in the year one invests in RRSPs, but it may also decrease how much is available for a down payment should there be enough in a client’s RRSPs already. Don’t worry, at Pinsky Mortgages, we can help you determine the best course of action and if the HBP is for you.

Can Somebody Participate in the Program Multiple Times? 

If a person who previously participated in the HBP finds that they once again meet the qualifying criteria, they may participate again. In order to do so, the amount they owe their RRSP account for the repayment of their previous withdrawal must be zero. 

Participating in the program is a bit of a process, but it’s worthwhile in many cases. If you have any questions, or simply seek guidance in navigating the program, please book a free consultation with Pinsky Mortgages. Our goal is to ensure that our clients make informed decisions with respect to obtaining mortgages and financing their homes. We look forward to hearing from you today!

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