The Home Buyers' Plan (HBP) is a Canadian government program that allows residents to withdraw funds from their Registered Retirement Savings Plan (RRSP) to buy or build a first home. This withdrawal is not taxed at the time, provided the amount is repaid into an RRSP over a maximum of 15 years. The plan facilitates access to home ownership by letting individuals use existing retirement savings for a down payment. Understanding the rules, limits, and repayment schedule is crucial for Canadians considering this option.
HBP Eligibility Requirements
To use the Home Buyers' Plan, you must meet specific conditions set by the Canada Revenue Agency. You must be a resident of Canada from the time of your first HBP withdrawal until you acquire the qualifying home. You generally must be a first-time home buyer, which means you have not owned a home that you occupied as your principal residence in the current calendar year or in any of the previous four calendar years. This condition is waived if you are buying or building a home for a related person with a disability. You must have a written agreement to buy or build a qualifying home, either for yourself or for that eligible disabled relative. The home must be located in Canada and you must intend to occupy it as your principal residence within one year of buying or building it. Furthermore, you must not have owned the home for more than 30 days before making your first HBP withdrawal.
There are other specific factors that can affect your eligibility status. If you are buying a home for a related person with a disability, the home must be better suited to their needs than their current home and must be used as their main residence. In the case of separation from a spouse or common-law partner, special rules may apply regarding the four-year period used to determine first-time home buyer status. The plan can be used to buy or build a home for yourself or for a related person with a disability, and the funds can be used for the down payment, closing costs, or both.
Withdrawal Limits, Deadlines and Process
The maximum amount you can withdraw under the HBP is $60,000 per individual. For a couple where both spouses or common-law partners are eligible, the combined limit is $120,000. This increased limit took effect on April 16, 2024, rising from the previous $35,000. The funds you wish to withdraw must have been in your RRSP for at least 90 days before the withdrawal date. You can make multiple withdrawals from one or more of your own RRSPs, but all withdrawals must be completed within the same calendar year as your first withdrawal, or no later than January of the following calendar year. The final deadline to withdraw funds is 30 days after the closing date for the purchase of the home. After this 30-day window, you are no longer eligible to make an HBP withdrawal for that home purchase.
The process for withdrawing funds requires careful coordination. You must complete Form T1036, Home Buyers' Plan Request to Withdraw Funds from an RRSP, for each withdrawal you make. You fill out part of the form, and your RRSP issuer completes the rest. It is critical to understand your bank's requirements ahead of time, such as the time needed to sell investments within the RRSP, to avoid delays in accessing your funds. The withdrawal itself is not considered taxable income, provided you meet all the HBP conditions and later repay the amount. You cannot withdraw funds from a spousal RRSP where you are the contributor, but you can withdraw from a spousal RRSP where you are the annuitant (the account holder).
- The withdrawal limit per person is $60,000 as of April 16, 2024.
- Funds must be in the RRSP for a minimum of 90 days before withdrawal.
- Withdrawals must be completed no later than 30 days after the home's closing date.
- All withdrawals for one home must be in the same calendar year or by January of the next year.
- You must submit Form T1036 to your RRSP issuer for each withdrawal.
- You can withdraw from more than one RRSP account you own.
- Some RRSPs, like locked-in or group plans, may not allow HBP withdrawals.
- The withdrawal is tax-free if all HBP conditions are met and repayments are made.
The 15-Year Repayment Schedule and Rules
Amounts withdrawn under the HBP must be repaid to your RRSP over a period of up to 15 years. Repayments are not considered new RRSP contributions and therefore do not reduce your available RRSP contribution room. Your repayment period starts in the second year following the year you made the withdrawal. For example, if you withdrew funds in 2024, your first repayment is due for the 2026 tax year. You are required to repay at least 1/15 of the total amount withdrawn each year. You can repay more than the minimum amount in any year, or even the entire outstanding balance at once without penalty. There is no maximum limit on how much you can repay in a single year.
To make a repayment, you must contribute money to your RRSP in the year the repayment is due or within the first 60 days of the following year. When you file your income tax return for that year, you designate all or part of that contribution as an HBP repayment. If you repay less than the required minimum in a given year, the shortfall is added to your taxable income for that year and you will pay tax on it at your marginal rate. The Canada Revenue Agency sends an annual statement summarizing your repayment balance. You can also check your HBP balance online using the CRA's My Account service. The CRA's annual statement details what you have repaid and what remains outstanding on your HBP balance.
- Repayment period is a maximum of 15 years.
- Repayments start in the second year after the year of withdrawal.
- The minimum annual repayment is 1/15 of the total withdrawn amount.
- You can repay more than the minimum or the full balance anytime.
- Repayments are made by contributing to an RRSP and designating it on your tax return.
- Missed repayments are added to your taxable income for that year.
- Repayments do not affect your RRSP contribution room.
- The CRA provides an annual statement of your HBP balance.
Recent Changes to Repayment Start Dates
A temporary change to the HBP affects when repayments must begin. For individuals who make an HBP withdrawal between January 1, 2022 and December 31, 2025, the start of the repayment period is extended. Instead of starting repayments in the second year after withdrawal, these individuals have up to five years before they must begin repaying the withdrawn amount. The total repayment period remains 15 years from the start of repayments. This change provides additional short-term cash flow flexibility for new homeowners during the years immediately following their purchase. It is important to note that this is a temporary measure applicable only to withdrawals made within the specified four-year window. The standard rule of starting repayments in the second year after withdrawal still applies to withdrawals made before 2022 and after 2025.
Common Mistakes and Important Considerations
Several common errors can complicate participation in the Home Buyers' Plan. One mistake is not ensuring the RRSP funds have been deposited for the full 90-day qualifying period before withdrawal. Another is missing the 30-day post-closing deadline to complete the withdrawal. Failing to make the minimum annual repayment will result in that unpaid amount being added to your taxable income for the year. It is also important to understand that contributions you make to your RRSP during the 89-day period before your HBP withdrawal may have their deductibility limited, meaning you may not be able to deduct the full amount in the year you contribute. Once you begin withdrawing funds under the HBP, you cannot cancel your participation unless under specific extenuating circumstances. If you do cancel, you must repay the full withdrawn amount to your RRSP to avoid it being taxed.
Special rules apply in certain life events. If you turn 71 years old, become a non-resident of Canada, or pass away during your repayment period, different requirements for the outstanding HBP balance come into effect. In the case of death, the outstanding balance is generally included in the deceased's income for their final tax return unless a surviving spouse or common-law partner agrees to take over the repayment obligations. Planning for these contingencies is an important part of using the HBP. Furthermore, you should be aware that participating in the HBP may affect your ability to claim the RRSP deduction for contributions made just before the withdrawal. These rules limit the deduction of RRSP contributions made during the 89-day period before an HBP withdrawal, meaning you may only be able to deduct part or all of those contributions in a different year.
How the HBP Compares to the First Home Savings Account (FHSA)
The First Home Savings Account (FHSA) is another registered plan introduced to help Canadians save for a first home. While both plans aim to facilitate home ownership, they operate differently. The HBP allows you to withdraw existing RRSP savings, whereas the FHSA is a dedicated savings account where contributions are tax-deductible and withdrawals for a first home are tax-free. Contributions to an FHSA do not need to be repaid, unlike HBP withdrawals. You can have both an FHSA and an RRSP, and you can use the funds from both plans for the same home purchase. This means eligible individuals could potentially use a combination of FHSA savings and an HBP withdrawal from their RRSP to maximize their available down payment funds. The HBP requires a 15-year repayment schedule, while the FHSA has no repayment requirement at all. The HBP has been a long-standing program, while the FHSA is a newer savings vehicle with its own annual contribution limits and lifetime maximum.
Step-by-Step Process to Use the HBP
Using the Home Buyers' Plan involves a series of specific steps that require coordination with your RRSP issuer and adherence to CRA deadlines. First, confirm you meet all eligibility criteria, including being a first-time home buyer and having a signed purchase agreement. Second, ensure the funds you intend to withdraw have been in your RRSP for at least 90 days. Third, contact your RRSP issuer to understand their specific process and timelines for HBP withdrawals, as they may need time to sell investments. Fourth, complete Form T1036 for each withdrawal, providing it to your RRSP issuer. Fifth, ensure the withdrawal is completed no later than 30 days after your home's closing date. Sixth, once you own the home, begin tracking your repayment obligations starting in the second year after withdrawal (or the fifth year for withdrawals between 2022 and 2025). Finally, make RRSP contributions and designate them as HBP repayments on your annual tax return to stay on schedule.
It is advisable to consult with a financial advisor to ensure the HBP aligns with your overall financial plan. They can help you understand the implications of temporarily reducing your retirement savings and the long-term commitment of the repayment schedule. You should also consider how using the HBP might allow you to accumulate a 20% down payment to avoid paying mortgage default insurance. Some individuals use a strategy of moving existing non-registered down payment savings into an RRSP at least 90 days before closing to get a tax deduction, then immediately withdrawing it under the HBP, using the tax refund for other purchase costs. This strategy requires having sufficient RRSP contribution room and careful timing to meet the 90-day rule.
Using the HBP for a Disabled Relative or Special Cases
The Home Buyers' Plan includes provisions for buying or building a home for a related person with a disability. In this case, the standard first-time home buyer requirement does not apply to you, the purchaser. To qualify, the individual with the disability must be related to you, which includes your spouse, common-law partner, child, grandchild, parent, grandparent, or the spouse or common-law partner of your child or parent. The home must be intended to be the disabled relative's principal residence. Furthermore, the home must be better suited to the personal needs and care of that person than their current home. All other standard HBP rules apply, including withdrawal limits, repayment terms, and the requirement that you be a Canadian resident during the withdrawal period. This provision allows families to use retirement savings to improve housing accessibility and suitability for a disabled family member.
Frequently asked questions
Do I have to pay back the RRSP money I withdraw?
Yes, you must repay the full amount withdrawn to your RRSP over a maximum period of 15 years. Repayments start in the second year after the year of withdrawal. You are required to repay at least 1/15 of the total each year. If you repay less than the minimum, the shortfall is added to your taxable income for that year.
How much can I withdraw from my RRSP for a first home?
As of April 16, 2024, the maximum withdrawal limit under the Home Buyers' Plan is $60,000 per eligible individual. If you have a spouse or common law partner who also qualifies, you can each withdraw up to $60,000 from your respective RRSPs, for a combined total of $120,000 to put toward the same home. This withdrawal is not considered taxable income at the time you take it out, provided you meet all HBP conditions. The funds must have been in your RRSP for at least 90 days before the withdrawal. This program is designed to help Canadian residents access home ownership by using their existing retirement savings for a down payment.
What qualifies as a first time home buyer for the HBP?
You are considered a first time home buyer if you have not owned a home that you occupied as your principal residence in the current calendar year or at any time during the previous four calendar years. This rule applies to you, your current spouse, or common law partner. An important exception exists if you are buying or building a home for a related person with a disability, in which case the first time buyer condition does not have to be met. Furthermore, you must be a resident of Canada from the time of your first withdrawal until you acquire the home. The home must also be intended for use as your principal residence within one year of buying or building it.
When is the deadline to withdraw RRSP money under the HBP?
You must complete your HBP withdrawal no later than 30 days after the closing date of your home purchase. All withdrawals for a given purchase must be made within the same calendar year as your first withdrawal, or in January of the following year at the latest. It is crucial to plan ahead with your financial institution, as you need to provide a signed agreement to buy or build a qualifying home and your bank may require time to process the withdrawal. The funds you withdraw can be used for your down payment, closing costs, or both, helping you to buy your home sooner.
Can I use the HBP if I have a locked in RRSP?
Typically, no. Some RRSP products, such as locked in RRSPs (LIRAs) or certain group RRSPs, do not allow withdrawals under the Home Buyers' Plan. You must check with your RRSP issuer to confirm if your specific plan is eligible for HBP withdrawals. It is a critical first step to verify the eligibility of your RRSP before planning to use the HBP. You can withdraw funds from more than one RRSP account you own, provided each account permits such withdrawals. Always consult your financial advisor to ensure you meet all the HBP requirements specific to your savings products.
What happens if I do not repay my HBP on time?
If you do not repay the minimum required amount in a given year, that unpaid portion is added to your taxable income for that year. You will pay income tax on that amount at your marginal tax rate. Your outstanding HBP balance continues to be due in subsequent years. The minimum annual repayment is one fifteenth of the total amount withdrawn, and you have up to 15 years to complete the repayment. For withdrawals made between 2022 and 2025, the start of the repayment period has been extended to five years after the year of withdrawal. You can track your balance using your annual Notice of Assessment from the Canada Revenue Agency.
Sources and further reading
- Use the Home Buyers' Plan to Buy Your Home Sooner cibc.com
- First Time Buyers and Canada's Home Buyers' Plan td.com
- What exactly is the Home Buyers' Plan (HBP)? ia.ca
- The RRSP Home Buyers' Plan rbcroyalbank.com
- What is the Home Buyer's Plan? canadalife.com
This article explains how things work and is not financial, tax or legal advice. Rules, limits and rates change, so check the current figures with the Canada Revenue Agency, your province or your financial institution before you act.