What is Canada’s Home Buyers’ Plan (HBP)

Published: February 18, 2023

Are you a first-time home buyer looking for ways to finance your dream home? The Canadian government created the First-TIme Home Buyers Plan (HBP) to help make mortgages more accessible and affordable for first-time homebuyers. The Home Buyers’ Plan (HBP) program allows eligible homeowners to withdraw up to $35,000 from their RRSP. As a couple, the HBP program allows you to take advantage of this plan and withdraw up to $70,000 combined! The catch? If you withdraw funds from your RRSP, you must return those funds within 15 years.

How Does the Home Buyers Plan Work?

Once approved, first-time home buyers can withdraw up to $35,000 from their RRSP without paying any withholding taxes. Couples may withdraw $35,000 each, for a total of $70,000.

Your RRSP funds must be in your account for a minimum of 90 days. The Home Buyers Plan does not allow the withdrawal of funds from your RRSP if the period has been less than 90 days. You’ll have until October 1st of the year following your withdrawal to buy or build your home.

You must also withdraw from your RRSP no later than 30 days after obtaining the title of your new home. You must make all withdrawals under the HBP within one calendar year.

First-time home buyers, buying a home using Canada's Home Buyers' Plan.

“The First-TIme Home Buyers’ Plan (HBP) is a program that lets eligible homeowners withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP)”.

Who is Eligible for the Home Buyers Plan?

To be eligible for the Home Buyers Plan (HBP), an individual must meet specific criteria. They include:

  • Must be a resident of Canada,
  • The purchase must occur within the same calendar year as their RRSP withdrawal,
  • You must be a first-time home buyer.
  • Qualifying homes include detached and semi-detached houses, condominiums, townhouses, mobile homes, apartments, and other similar dwellings.
  • Plan to use the home as your principal residence within a year of building or buying it. 
  • You are purchasing or building a principal home for a relative with a disability.
  • Have a written agreement to buy or build a home for themselves or a relative with a disability.

Repaying RRSP Funds under the Home Buyers Plan

First-time home buyers must repay all borrowed funds from their RRSP’s within 15 years if they used the first-time home buyers plan. The minimal annual payment is determined by dividing fifteen (15) – the loan term length – with the amount withdrawn from your account.

For example, if you withdrew the entire allowable amount of $35,000, your minimum annual repayments would be $2,333 ($35,000/15). The first payment is due two years after you make your first withdrawal.

Each year, before the RRSP deadline, you must repay the predetermined amount of your HBP loan into your RRSP. You will want to make the minimum repayment to avoid any remaining balance added as income and taxed accordingly. CRA will send you an annual statement outlining how much you’ve paid back into your RRSP and the outstanding balance. 

You do not have to take 15 years to pay back your HBP balance. You can pay it back early should you choose. As a bonus, repayment of your HBP balance does not affect your RRSP deduction limits in any way.

If you cannot repay the required amount in any of the years following your RRSP withdrawal, the difference becomes RRSP income for that year, which the CRA will tax.

Can you cancel the Home Buyers’ Plan?

Yes! You can cancel the Home Buyers’ Plan if you need to. However, you will have to contact the CRA and provide a valid reason for cancelling, such as being unable to purchase or build a qualifying home due to unforeseen circumstances.

Once approved, withdrawn funds must be redeposited back into your RRSP within 90 days. Failure to do so will result in a penalty equal to the amount withdrawn from your RRSP.

If you want to cancel the Home Buyer’s Plan, you must complete the RC471 Home Buyers’ Plan (HBP) Cancellation form. You must send the cancellation form to CRA, a receipt showing that you have deposited the withdrawn amount back into your RRSP, and a letter explaining your decision.

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How to apply for the Home Buyers’ Plan

If you’re starting the First-Time Homebuyers Plan process, your first step is to get form T1036 – ‘Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP.’ In Area 1 of this document, fill out all required information. The financial institution holding your RRSP will fill out Area 2 for you.

Once submitted, your RRSP provider will deposit the funds directly into your designated account. You’ll also receive a T4RSP slip for confirmation and tax return purposes the following year. It outlines how much money you withdrew from your RRSP.

Pros and Cons of the Home Buyers’ Plan

Pros

  • The HBP acts like an interest-free loan.
  • You can take up to 15 years to repay your loan interest-free.
  • The HBP allows you to withdraw up to $35,000 for down payment purposes.

Cons

  • If your RRSP doesn’t have sufficient funds, the HBP won’t help you very much.
  • You must make yearly repayments, or CRA will tax your RRSP withdrawals.
  • Reducing your RRSP means forgoing potential tax-sheltered investment/savings and potential growth of your investment.

Breakdown of a Marriage or Common-Law Partnership

You may qualify for the First-Time Homebuyers’ Plan after the breakdown of a marriage or common-law partnership. The requirements are:

  • You must have lived separately and apart for a minimum of 90 days.
  • You must be living separate and apart at the time the withdrawal is made and began to live separate and apart in the year in which the withdrawal is made or any time in the four preceding years;
  • You will be required to dispose of your previous principal residence within two years after the end of the year you make the HBP withdrawal. This requirement will be waived if you buy out the share of the home owned by your spouse or common-law partner.
  • The rule that individuals may only acquire the home up to 30 days before making the HBP withdrawal will also be waived in this circumstance.
  • In the case where your principal residence is a home owned and occupied by a new spouse or common-law partner, you will not be able to make a Homebuyers’ Plan withdrawal under these rules.

Conclusion

Canada’s First-Time Home Buyers’ Plan is an invaluable resource for first-time home buyers, allowing them to withdraw up to $35,000 from their RRSPs with no interest or penalties. 

Whether you’re a homeowner looking for extra funds for mortgages and down payments, or someone who has gone through the breakdown of a marriage or common-law partnership, the HBP can help make your dreams of owning a home come true. With its flexibility and benefits, it’s no wonder that so many Canadians are taking advantage of the Home Buyers Plan!

If you’re considering taking advantage of this great opportunity, do your research carefully, so you understand exactly how the process works – good luck with your homeownership journey!


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