Planning to use the Home Buyers Plan (HBP)?

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Planning to use the Home Buyers Plan (HBP)?

December 13, 2013

There are various saving strategies individuals can implement in order to save for their first down payment on a home. One of those strategies which should not be overlooked is to utilize the Home Buyers Plan available to first-time home buyers in Canada.

The basis of the Home Buys Plan is to allow individuals, who are first-time home buyers, to remove up to a maximum of $25,000, tax-free, from their RRSP to put towards the purchase of a new home. Subsequent to the removal of the RRSP, the individual has 15 years to repay the loan back interest-free. There are of course specific rules to this plan, which are discussed in further detail below along with a list of important considerations to make prior to deciding to utilize this plan or not.

Considerations:

When thinking about using the HBP, the following considerations should be made:

The current amount in your RRSP along with the current room available;
The number of years away from retirement;
If you already have a down payment, what is the benefit of taking the additional amount out? Would it bring you to 20% and allow you to avoid paying into CMHC? Would it impact your mortgage interest rate?
What is the current rate of return you are receiving on your RRSP? By taking an amount out, how much possible investment are you losing? This possible investment loss would be the “interest” in using the HBP rather than another source.
Will you have the means to repay the amount back over 15 years? Keeping in mind that if you do not repay the required amount each year, the minimum payment gets brought into income and you lose that RRSP room.

The above is just a short list of considerations that should be made prior to determining if the HBP is the right option. It is important as tax advisors that we discuss all these considerations with any client thinking of withdrawing under this plan.

Qualifications:

In order to qualify to use the HBP the following must be true:

You have entered into a written agreement to buy or build a qualifying home for yourself, for a related person with a disability or to help a related person with a disability buy or build a qualifying home;
You have to intend to occupy the qualifying home as your principal place of residence no later than one year after buying or building. The same must apply for a person with a disability;
In all cases, your HBP repayable balance must be Nil on January 1 of the year of the withdrawal; and
You have to be considered a first-time homebuyer.

You are not considered a first-time home buyer if, at any time during the period beginning January 1 of the fourth year before the year of the withdrawal and ending 31 days before the date of withdrawal, you or your spouse or common-law partner owned a home that you occupied as your principal place of residence.

If at the time of the withdrawal you have a spouse or common-law partner, it is possible that only one of you will be considered a first-time homebuyer.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.