WHAT IS THE HOME BUYERS’ PLAN?
The Home Buyers’ Plan is offered by the Canada Revenue Agency that allows individuals who are purchasing their home for the first time to withdraw $35,000 from their RRSP tax-free to help pay for the down payment on the home. For people who are purchasing their home with another first-time home buyer, they are both able to take advantage of this benefit to pool a total of $70,000 towards the down payment. Nevertheless, this arrangement is considered a loan from the RRSP and must be paid back within 15 years with the first payment due two years after the withdrawal.
DO I QUALIFY FOR THE HOME BUYERS’ PLAN?
To be eligible for the HBP, you must be considered a first-time home buyer and have a written agreement that you are buying or building the home for yourself. You also must intend to live in the qualifying home as your principal place of residence within a year of buying or building it.
If you are withdrawing from your RRSP to help a related person with a disability, you also need to have a written agreement to buy or build a home for them. In the case of using the HBP to help a disabled individual, the home must also better suit their needs compared to their current home.
WHO IS CONSIDERED A FIRST-TIME HOME BUYER?
To be considered a first-time home buyer, you must not have lived in a home owned by you or your spouse/common law for the past four years. Thus, it is possible that between you and your spouse, only one of you is considered a first-time home buyer. This also indicates that in rare circumstances, it is possible to benefit from the HBP more than once.
WHAT IF I HAVE CONTRIBUTION ROOM IN MY RRSP?
If you have contribution room in your RRSP and were planning on paying your down payment without using the HBP, you may want to reconsider. By depositing $35,000 (or whatever your contribution room allows) into your RRSP and leaving it there for 90 days, you can withdraw it for the HBP and receive the tax benefits for depositing it into your RRSP. This method allows you to receive even more money to put towards your home.
Overall, as house prices continue to increase, the HBP is a great way to generate enough wealth for the down payment. In fact, we think it’s such a great benefit that we did an entire webinar on how we think it is the Second-Best Tax-Saving Strategy ever – you can watch it here.