The Home Buyers' Plan (HBP) is a program that allows you to withdraw some of your Registered Retirement Savings Plan (RRSP) tax-free to use towards the purchase of a home. Even if you are aware of the program, there may be some things about it that you do not know.
Home Buyers' Plan - How It Works
The program allows you to pull out up to $25,000 of RRSP's per person to be used towards a primary residence purchase. If you are a couple and you both qualify to use it, your max would be $50,000 if you each have $25,000 invested. As long as you meet the program guidelines for eligibility and withdrawals, you can do this without being taxed on the money you pull out. And, of course, the investment you have your RRSP in must also be cashable. It is possible one person in a couple will qualify to use the program and the other will not. You then pay the amount you pull out back 1/15 per year over 15 years. If you ever miss a repayment, that payment is considered income in that year and Canada Revenue Agency (CRA) will require you to pay taxes on it.
- Moving In With Someone Could Take Away Your Eligibility To Use The HBP - The elibility guidelines state that you are considered a first-time home buyer and can use the program "if, in the four-year period (defined specifically by CRA; see their definition to determine your exact timeline), you did not occupy a home that you or your current spouse or common law partner owned." In other words, if you move in with your girlfriend or boyfriend into a property they own and live with them for a year, this could prevent you from using the program until you are outside the four-year period, which is actually 4 - 5 years depending on the timing.
- You Can Use the HBP If You Previously Owned Or If You Have Only Owned An Investment Property - If you previously used the program, that does not prevent you from using it again. Your previous account has to be paid to zero in January of the year you plan to withdraw again. You must also meet the same first-time home buyer requirement of not having lived in a property you or your spouse or common law partner owned for the CRA definition of the four-year period prior to your purchase. You can also use the program for the first time even though you previously purchased an investment property, as long as you meet these same requirements now.
- It Can Be Used For Things Other Than Down Payment - The program states that the funds go towards the purchase or build of an eligible property. But, it can be used for things other than down payment related to a home purchase. For example, you can use it to help pay legal fees or closing costs on a purchase.
It is the individual withdrawing their RRSP funds who is responsible for confirming their eligibility to use the program, so you should not rely upon anyone except CRA regarding your eligibility. You can click here to review the rules and guidelines carefully:
You can also call CRA to clarify or ask questions. If you do not meet the guidelines and pull that money out, you could face an unexpected tax bill when you file your taxes.
Courtesty of Michelle Lapierre, Mortgage Broker with Mortgage Tailors
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