Buying a house is sadly quite the challenge for many; lack of finances being the main reason why. Whilst by law, a 5% minimum down payment is needed to purchase a house, many wish to contribute more to avoid a huge mortgage. That means saving a large amount of money.
The Home Buyer’s Plan (HBP) can help towards some of those costs by using some of your Registered Retirement Savings Plan (RRSP) to buy a first house. If approved for the plan, an individual can withdraw up to $60,000 tax-free (as a couple a total of $120,000). Your RRSP provider can confirm the rules and amounts though.
Am I eligible for the Home Buyer’s Plan?
There are many rules and conditions for using the plan, though the main criteria are:
- Be a resident of Canada
- Have a RRSP with a sufficient amount to withdraw
- Be a first-time house buyer. The Government of Canada defines this as: in the 4 year period before you began participating in the plan, you did not occupy a home that you owned or one that your current spouse or common-law partner owned.
- You have a written agreement to buy or build a house for yourself, or a relative with a disability.
- You will use the house as your principal residence within a year of building or buying it. Or the house will be the principal residence for a relative with a disability.
- Are buying a qualifying type of house. Most types of property, including condo and apartments qualify, though there are exceptions.
Note that money can only be withdrawn from your RRSP if it has been in the account for at least 90 days. Any funds in the account less than that cannot be used.
You must withdraw from your RRSP no later than 30 days after receiving the title of your new house. All withdrawals under the HBP must be done within one calendar year.
Whilst the Home Buyer’s Plan is aimed at first-time buyers, it is possible to use it again. If the withdrawn money has been repaid and the eligibility criteria has been met, then it’s possible to apply to use it again.
Applying for the plan and making withdrawals
If you meet the eligibility criteria, you will need to fill out a form called the T1036. This is a request to withdraw money from your RRSP under Home Buyer’s Plan. You will need to complete Area A; your RRSP provider will need to complete Area B. Each time you wish to withdraw from your RRSP, you will need to complete the T1036 form.
Once the form has been submitted to your RRSP provider, they will confirm that the money you wish to withdraw has been in your account for at least 90 days. Your RRSP provider will approve the release of the funds to your nominated bank account. You can withdraw the funds though note it cannot be longer than 30 days after you take possession of your house.
When it’s time to submit your taxes, your RRSP provider will issue you a T4RSP statement. It will state the amount withdrawn and allocated to the Home Buyer’s Plan. The statement confirms to the CRA that the withdrawal is valid and tax-exempt.
If you have multiple RRSPs and want to withdraw from them, you’ll need to submit separate T1036 forms to each provider. Note withdrawals for the Home Buyer’s Plan must be made within the same calendar year.
Repaying your RRSP
As a rule of using the Home Buyer’s Plan, all funds withdrawn must be repaid to a RRSP within 15 years. Repayment begins in the second year following the year you withdrew funds. So if you withdrew money in 2023, repayment will begin in 2025. But in the 2024 budget, anyone who used the Home Buyer’s Plan between January 1st 2022 and December 31st 2025, will have up to five years before repayment starts.
You will need to make a minimum repayment every year, for 15 years. This repayment is the amount you withdrew divided by 15 years. As an example, you withdrew $60,000 so your annual repayment would be $4,000.
Repayment is made into your RRSP before the annual deadline. You can pay back more than you owe, which will reduce your annual minimum repayment. You can even repay in full if you are able to. Note that repayment does not count towards your annual RRSP contribution limits.
It’s important to make the minimum annual repayment. If you don’t, you will need to include the amount in your taxable income, which will be taxed by the CRA.
To help you, the CRA will send you a HBP account statement that will outline your outstanding balance and the minimum payment required each year. It will also outline what you’ve paid back. You can find more details through MyAccount on the CRA website.
Can I cancel my application for the Home Buyer’s Plan?
It is possible to cancel, though under two very specific conditions:
- You or your disabled relative did not buy or build a house by October 1st of the year following your RRSP withdrawal;
- You became a non-resident of Canada before buying a house.
If you meet those conditions, you can cancel and repay the full balance to a new or existing RRSP. Note the repayment must be made before December 31st of the year after you withdrew the money.
To cancel the Home Buyer’s Plan, you must complete the RC471 form and send it to the CRA with confirmation of your repayment to a RRSP. You will need to include a letter explaining your decision to cancel.
The CRA must receive both the form and letter within 60 days of your repayment deadline. Any of the funds not repaid by the deadline will be taxed at your marginal tax rate.
Is it worth it?
Home ownership is frankly a struggle for many in Canada. So the Home Buyer’s Plan is an interesting option to boost your down payment. It can be considered a loan, though at 0% and without tax consequences (as long as you repay the funds on time).
By increasing your down payment, you could reduce your mortgage payments and may avoid mortgage insurance. But withdrawing from RRSP could mean missing out on gains from your investments.
Ultimately you need to determine what is of more value to you: owning real estate where you could build equity? Or growing your savings to fund retirement many years from now.