Canada’s RRSP Home Buyers’ Plan

A down payment of at least 5% of the house’s purchase price is required in Canada. If you don’t have the funds available in savings, or you want to increase your down payment, you can use the money you’ve contributed to your Registered Retirement Savings Plan (RRSP) thanks to the Home Buyers’ Plan (HBP).

Let’s look at the ins and outs of the Home Buyers’ Plan so you can make the best possible decision for your financial situation.

What Is The Home Buyers’ Plan (HBP)?

The Home Buyers’ Plan lets you withdraw money from your RRSP to purchase your first home. The program is designed to help first-time buyers enter the housing market and use their RRSP funds without being subject to taxation when withdrawing.

To participate in the HBP, you need an RRSP and have money saved within it. The money in an RRSP is tax-deferred and is taxed at your marginal income tax rate when you withdraw from it.

However, with the HBP, you can withdraw up to $60,000 from your RRSP and not get taxed. You’re giving yourself an interest and tax-free loan and you must pay back (to yourself) the amount you took from your RRSP.

How Does The RRSP HBP Work? 

The HBP process is relatively straightforward and works as follows:

Step 1: Have The Funds In Your RRSP At Least 90 Days Before Withdrawal

Before withdrawing from your RRSP, ensure that the money you take out has been in the account for at least 90 days. One of the perks of your RRSP contributions is that they are tax-deductible. If you withdraw money that has been in the account for less than 90 days, you may be denied the RRSP tax-deductible benefit. 

As such, make sure that the funds you want to take out are in your RRSP a minimum of 90 days before the date of withdrawal.

Step 2: Complete The HBP Request Form

Before withdrawing money from your RRSP account to participate in the HBP, you’ll need to provide this form to your bank: Form T1036 Home Buyers’ Plan (HBP) Request to Withdraw Funds. 

You can download it from the Canada Revenue Agency (CRA) website and fill it out using Acrobat Reader or print it out and complete it manually. 

Step 3: Withdraw Funds From Your RRSP 

If the funds you’d like to withdraw have been in your account for 90 days, withdraw the necessary funds from your RRSP and use them to put toward your down payment. You can withdraw up to $60,000 from your RRSP without taxation through the Home Buyers’ Plan.

How Much Can You Withdraw From Your RRSP If You’re Buying With A Partner? 

If you’re buying a home with your spouse or common-law partner and you both qualify for the HBP, you can withdraw $60,000 each from your RRSPs. So, you can borrow a total of $120,000 to be used for a down payment for your first home.

Step 4: Repay The Borrowed Funds

You must repay what you borrowed from your RRSP within 15 years to avoid being taxed on the withdrawn funds. Repayments begin in the fifth calendar year following the withdrawal. 

Further, you must pay back a minimum of 1/15th of the withdrawal yearly. So, if you withdrew the full $60,000 you’re eligible for, you would have to repay $4,000 per year. That said, you’re free to make additional payments at any time towards repaying what you’ve withdrawn.

What Happens If You Don’t Make A Payment? 

If you miss the required payments by the due date, include the amount on your income tax return on line 12900. That amount will be included in your income and be taxed according to your income tax rate. 

Are You Eligible For The HBP? 

To qualify for the HBP, you must meet the following criteria:

• You cannot have owned a home over the past four years
• If you’re buying with a spouse or common-law partner, you cannot have lived in a home they owned over the past 4 years
• The home must be considered your primary residence for at least the first year after buying it
• You must be a Canadian citizen or a permanent resident
• You must be a resident of Canada from when you make your first RRSP withdrawal under the HBP to when you purchase a qualifying home
• You must get a written agreement that states that you are purchasing a home that qualifies you for the HBP.
• If you’ve used the HBP to purchase a house in the past, you must not have any outstanding balances.

Can You Withdraw From Your RRSP HBP And Your FHSA For The Same House? 

Yes, you can withdraw money from your RRSP under the HBP and withdraw from your First Home Savings Account (FHSA) for the same qualifying house. Keep in mind that you must meet all eligibility requirements at the time you withdraw from each account. 

Pros And Cons Of The RRSP HBP

The HBP offers a way for you to access a large sum of money for a down payment on your first home. But there are also some drawbacks to consider as well before making your first withdrawal from your RRSP:

Pros

• Use your own money you’ve saved. You already saving by contributing to your RRSP. With the HBP, you can use these funds to buy a home without being taxed upon withdrawal.
• You don’t have to start repaying right away. With the HBP, you have a 5-year grace period before you need to start repaying what you borrowed from your RRSP. This gives you lots of time to budget appropriately and come up with the funds needed to start making payments.
• Repay in regular installments. With the HBP, you don’t have to repay what you borrowed in one lump sum. You can split your payments up over the 15-year repayment period. That said, the HBP is flexible, so have the option to pay back what you borrowed at one time if you have the money available. 

Cons

• You must meet eligibility requirements. Several criteria must be met to qualify for the HBP, including being a first-time home buyer.
• The funds must be in your RRSP for at least 90 days. You can only withdraw from your RRSP tax-free if the money has been in your RRSP for at least 90 days before you make your first withdrawal.
• You’ll miss out on income earned on withdrawn funds. Money invested within your account has time to grow. Once that money is taken out, you’re missing out any potential interest and capital gains until you repay the funds and start investing again. 

Can You Cancel The Home Buyers’ Plan?

Yes, you can cancel the HBP, but only under certain exceptions. Generally speaking, you can’t cancel your participation in the plan unless one of the following applies:

• You became a non-resident of Canada before buying the home
• You didn’t purchase or build a qualifying home 

If you made a qualifying withdrawal under the HBP to help a disabled person purchase a home, one of the following situations must apply to cancel your participation in the HBP:

• The disabled person didn’t purchase or build a qualifying home 
• You became a non-resident before the disabled person purchases or builds a qualifying home 

If you made a qualifying withdrawal under the HBP following the breakdown of your marriage or common-law partnership, you may cancel your participation in the HBP if both of the following situations apply:

• You didn’t acquire your spouse or common-law partner’s interest in the home
• You didn’t sell an owner-occupied home at the time you withdrew the funds before the end of the second year following the year of your first HBP withdrawal

When you decide to cancel your HBP and you fall under the relevant exceptions listed above, you’ll need to supply the following to the CRA:

• Completed form RC471 Home Buyers’ Plan (HBP) – Cancellation
• Receipt of a repayment of the withdrawn funds to your RRSP
• Letter explaining your reason for cancelling

Additional Reading

Best Homeowner Tax Credits In Canada

First-Time Home Buyers’ Tax Credit (HBTC)

Assessed Value vs. Market Value: How Does It Affect Your Home Equity?

Home Buyers’ Plan Alternatives

In addition to the HBP, there are other alternatives to consider to help you buy your first home. Perhaps one of the best programs designed for this endeavour is the First Home Savings Account (FHSA).

An FHSA is a registered account that allows first-time home buyers to save up for a home. You can contribute up to $8,000 per year, up to a lifetime maximum of $40,000. This type of account combines the best of both worlds of a Tax-Free Savings Account (TFSA) and RRSP, as it offers both tax-deductible options when filing your taxes and tax-free withdrawals.  

While the HBP and FHSA can both offer great ways to save for a home and make a down payment towards a home purchase, it’s important to understand a couple of differences between the two:

Bottom Line

Buying your first home requires a substantial financial commitment. If you have trouble generating a large sum for a down payment, the HBP can be very helpful. Just keep in mind that whatever you borrow must be repaid within a set amount of time, or the funds withdrawn may be taxed.

Home Buyers’ Plan FAQs