Understanding the Home Buyers’ Plan

February 22, 2016

Buying your first home is a big deal, and it is also a major cost. Lucky for you, there is a program in place called the Home Buyers’ Plan, which allows first time home buyers to withdraw up to $25,000 in a calendar year from your registered retirement savings plans (RRSPs) for the purpose of buying or building a qualifying home.

How Does The Home Buyers’ Plan Work?

“The money withdrawn under this plan is not taxable income. Each spouse is able to withdraw $25,000. The home buyer then needs to repay 1/15 of the amount withdrawn from the RRSP for the next 15 years,” explains mortgage broker Shaun Pierce.

“There are no penalties for paying back the money faster, however, please note these contributions are not eligible for a taxable benefit as you received that benefit when you initially deposited the money. If you do not make the minimum payment in a particular year that amount will be added to your personal income tax return.”

Are You Eligible For This Program?

To be eligible for the Home Buyers’ Program, you must be a first-time home buyer and you must have a written agreement to buy or build a qualifying home for yourself.

If in the four-year period (beginning January 1st of the fourth year before the year you withdraw funds) you did not occupy a home that you or your current spouse/common-law partner owned, you would be considered a first-time home buyer.

When Should You Utilize This Program?

“The beginning of the year is a good time for first time home buyers to consider this program, as if they have cash available and the RRSP contribution room, they could create a tax refund that could increase the size of their down payment,” says Pierce.

If a first time-home buyer makes a deposit prior to the deadline of February 29th, they have the ability to file their tax return with the RRSP contribution. Depending on your tax bracket, this could mean that you may net a tax refund.  

For more information on the requirements and processes of the Home Buyers’ Plan, visit http://www.cra-arc.gc.ca/hbp/.