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Home Buyer's Plan: Tax-Free RRSP Withdrawals For Homebuying

Posted by on Wednesday, May 15th, 2024 at 10:04am.

How to Use the RRSP Home Buyers' Plan

The RRSP Home Buyers' Plan (HBP) is a helpful federal resource supporting first-time homebuyers in Alberta. This program lets you withdraw a significant amount from your RRSP tax-free for a down payment on a home. But before you take the leap, knowing the program's eligibility requirements and repayment terms is essential. Understanding the HBP and its implications for your financial future can help you make a well-informed decision about taking advantage of this program. So, are you ready to explore the HBP and the benefits it offers first-time homebuyers in Canada?

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Key Takeaways

  • With HBP, individuals can withdraw up to $60,000 per year tax-free for a down payment on a home.
  • Funds must be held in RRSP for 90 days before withdrawal, and annual statements track the progress of RRSP repayment.
  • Repayment starts in the fifth year over a 15-year period, with 1/15 of the total amount paid yearly.
  • Couples can jointly withdraw up to $120,000 for a home, making it easier to achieve their dream of homeownership.

What Is the Home Buyers' Plan (HBP)?

The Home Buyers' Plan (HBP) enables first-time home buyers in Canada to withdraw funds from their registered retirement savings plans (RRSP) for a down payment on a property. RRSP holders can withdraw these funds without incurring any taxes. In 2024, the HBP withdrawal limit for first-time buyers increased to $60,000 from the previous limit of $35,000. The HBP is associated with RRSP accounts and is different from TFSA and FHSA.

If you plan to withdraw funds from your RRSP through the Home Buyers' Plan (HBP), you must start paying back the amount in the fifth year after the withdrawal. This time frame has also increased from the previous grace period of two years after the withdrawal. Canadians withdrawing from their HBP plans between January 1st, 2022, and December 31st, 2025, will also benefit from the five-year grace period. The repayment plan is spread over 15 years, providing flexibility for fulfilling this obligation without facing any tax penalties.

HBP Eligibility Requirements

To qualify for the HBP, you must be a Canadian resident, a first-time home buyer, and not have owned a principal residence in the past four years. You must also have a written agreement to buy or build a qualifying home in Canada. Additionally, you must occupy the home as your primary residence within one year of the purchase or build.

Participants can include a share in a co-op housing corporation as a qualifying home under the HBP. However, a share that only gives you the right to tenancy does not meet the requirements.

HBP Eligible Withdrawals

In order to withdraw funds from your RRSP under the Home Buyers' Plan, they must have been in the account for at least 90 days. Once you have withdrawn, you have until October 1st of the year following the withdrawal to use the funds to buy or build your home.

How Does HBP Work?

To make the most out of the Home Buyers' Plan (HBP), it's essential to focus on two key factors:

1. The amount of money you're allowed to withdraw

2. The process for repaying your RRSP

Understanding these aspects will help you navigate the HBP program more effectively and make informed decisions when using your RRSP savings for a home purchase.

To ensure you fully benefit from this program, staying informed about the maximum withdrawal limits and repayment requirements is essential.

Withdrawal Amounts

To utilize the Canada RRSP Home Buyers' Plan, eligible individuals can withdraw a maximum of $60,000 per calendar year from their RRSP for a tax-free home purchase. This withdrawal amount is set explicitly for each individual, so if you're purchasing a home with a spouse or partner, you can each withdraw up to $60,000, totalling $120,000 for the downpayment. Despite the relatively high withdrawal rules, annual contribution limits are capped at $31,560 (or 18% of income). This is still significantly higher than a Tax Free Savings Account.

Remember, the funds must be in your RRSP for at least 90 days before withdrawal. Additionally, it's crucial to complete the withdrawals within 30 days after the closing date of the home purchase to qualify for the tax-free benefits under the Home Buyers' Plan.

Repaying Your RRSP

Repayments to your RRSP must start in the fifth year after the withdrawal, and at least one-fifteenth of the withdrawn amount should be repaid annually to avoid taxes. The repayment period for HBP withdrawals spans 15 years, and you can choose between lump sums or regular payments to meet the 15-year obligation. Fulfilling these repayment requirements is crucial to staying in good standing. The government provides an annual statement outlining the progress towards repaying the RRSP withdrawals, making it easier for you to track your repayment journey.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Buying Your First Home With HBP

RRSP Home Buying Program

The Home Buyers' Plan can be an excellent resource for first-time home buyers in Alberta. With the HBP, you can withdraw tax-free funds from your RRSP to finance the down payment. It’s a win-win situation for Canadians who aspire to become homeowners.

However, before you opt for this plan, it's crucial that you meet the eligibility requirements and fully understand how it works. If you think this plan is a good fit for you, consulting with a real estate professional who can provide valuable insights and guide you through the home-buying journey is always a good idea.

Frequently Asked Questions

Is the RRSP Home Buyers' Plan a Good Idea?

Depending on your circumstances and goals, taking advantage of the RRSP Home Buyers' Plan can be a smart move. The tax-free withdrawal from your RRSP can help you purchase a qualifying home, allowing you to achieve your dream of homeownership while minimizing your tax burden.

Can You Use RRSP to Buy a House in Canada?

Yes, you can use your RRSP to buy a house in Canada, but you must be a Canadian resident, a first-time home buyer, and not have owned a principal residence in the past four years.

How Much Can You Withdraw From an RRSP for a Home Buyer's Plan?

You can withdraw up to $60,000 tax-free from your RRSP for a downpayment. Spouses or partners can each take out $60,000, totalling $120,000. Funds must be in the RRSP for 90 days before withdrawal.

When Should You Pay Back the RRSP Home Buyers' Plan?

Repayments to your RRSP Home Buyers' Plan begin in the fifth year after withdrawal. At least one-fifteenth of the withdrawn amount must be paid annually, and you have 15 years to pay off the total amount.

What Is the Definition of a Common-Law Partner?

Spouses and common-law partners are eligible for a withdrawal total of $120,000. In Alberta, an Adult Interdependent Relationship meets these criteria: the couple has made a formal Interdependent Adult agreement, they have lived together for at least three years, or they share a child by either birth or adoption.

What's the Difference Between HBP and First-Time Home Buyers' Tax Credit?

The First-Time Home Buyers' Tax Credit is a non-refundable tax credit, which provides a benefit of up to $750 (based on an amount of $5,000) on an individual’s tax return for the year the home is purchased. HBP, on the other hand, is a tax-free withdrawal from an RRSP account, paid back over 15 years.

If you're looking for the perfect Calgary home, contact Justin Havre with eXp Realty and Calgary Homes at (403) 217-0003 to get in touch with a local Calgary real estate agent and discover your new dream home today.

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