What exactly is the Home Buyers’ Plan (HBP)?

1. How does the HBP work?

The Home Buyers’ Plan (HBP) is a government program designed to facilitate access to home ownership for Canadian residents. It allows you to withdraw money from your registered retirement savings plan (RRSP) to buy or build your first home.

Here’s some information to keep in mind if you’re thinking of using the HBP:

• You can withdraw a maximum of $60,000.
• The funds must have been in your RRSP for at least 90 days prior to withdrawal.
• You pay no tax on the amount withdrawn, provided that you repay the amount to your RRSP within 15 years.

2. Who is eligible for the HBP?

Certain eligibility criteria must be met in order to use your RRSPs for the HBP. Here are the main requirements:

• You must use the money to purchase your “first home”. This means that you must not have lived in a property that you or your spouse owned in the previous 4 years.
• The home you purchase must become your principal residence within one year of purchase.
• You must be a resident of Canada at the time of withdrawal and until the purchase or construction of your home.
• You must have a written agreement confirming that you intend to purchase your home, such as a promise to purchase or a contract for sale.
• The home you purchase must be located in Canada. Note that most housing types are accepted (e.g., single-family, semi-detached, condo).

For specific details on each criterion, see Definitions for Home Buyers’ Plan.

3. How to make a withdrawal from your RRSP under the HBP

Before withdrawing money from your RRSP, start by consulting your advisor. They can guide you every step of the way and make sure you meet the HBP requirements.

Next, you’ll need to:

• Fill out the first part of the HBP form: T1036 Home Buyers’ Plan (HBP) - Request to Withdraw Funds from an RRSP.
• Submit the HBP form to your financial institution or advisor for follow-up.
• Use the funds withdrawn to finance the purchase or construction of your home.

Note: You can make multiple withdrawals under the HBP. However, these withdrawals must be made in the same year as your first withdrawal, or no later than January of the following year.

4. How does repayment under the HBP work?

You must repay the amount withdrawn under your HBP to your RRSP over a maximum period of 15 years. Repayment must begin in the 2nd year following the year of withdrawal. So, if you withdrew money in 2024, you would begin repayment in the 2026 tax year.

Here are the details:

• You must repay at least 1/15 of the amounts withdrawn from your RRSP each year. For a withdrawal of $15,000, the minimum annual repayment would therefore be $1,000 per year.
• You’ll need to report the amount repaid each year on your income tax return.
• If you don’t repay the required annual minimum, the shortfall will be added to your taxable income. You’ll have to pay tax on this amount.

5. What is the difference between the HBP and the FHSA?

Like the HBP, the tax-free first home savings account (FHSA) is designed to facilitate access to home ownership. However, there are a number of differences between the two:

• As with the RRSP, FHSA contributions reduce your taxable income. However, you can contribute a maximum of $8,000 per year and a lifetime limit of $ 40,000.
• Withdrawals from your FHSA are tax-free when you use the money to purchase your first home.
• Unlike the HBP, you don’t have to repay the money you use.
• If you don’t end up using the funds in your FHSA to purchase a home, you can transfer them to your RRSP or your registered retirement income fund (RRIF) tax-free.

Don’t hesitate to explore your options for buying your first home: the HBP, the FHSA or a combination of the two. Each option has its own advantages and requirements. It’s important to choose the one that best suits your needs!

Learn more about the FHSA

To make sure you have the right guidance for the purchase of your home, talk to an advisor. They’ll work with you to determine the best strategy for your situation.