Home Buyers' Plan

Are you considering purchasing your first home next year?

If so, before March 1 could be the best time to implement this strategy if you are thinking about buying this spring.

If you need a source for your down payment, The Home Buyers’ Plan (HBP) will allow you to withdraw up to $25,000 from your RRSP to use in assisting with the purchase of your first home, tax free.

If you are purchasing with someone who is also a first-time home buyer then that amount can be increased to $50,000. You can use any amount up to $25,000 to add to any down payment amount you may have saved or use towards other expenses for purchasing a home.

To provide first-time home buyers with greater access to their RRSP savings to purchase or build a home, Budget 2019 proposes to increase the Home Buyers' Plan withdrawal limit to $35,000.

This would be available for withdrawals made after March 19, 2019. (Please check with your financial institution or the CRA for the current status for withdrawal amounts.)

To help Canadians maintain homeownership, Budget 2019 also proposes that individuals that experience the breakdown of a marriage or common-law partnership be permitted to participate in the Home Buyers' Plan, even if they do not meet the first-time home buyer requirement.

This measure would be available for withdrawals made after 2019.

The amount that you have withdrawn from your RRSP must be paid back into your RRSP account in annual payments and you have 15 years to repay them but if you don’t make your annual payment then it will be added to your annual income and you will be taxed accordingly.

If you make a withdrawal from your RRSP, but do not meet the first-time homebuyer eligibility requirements, this withdrawal will be taxed and you must include it in your income tax return as taxable income.

So what if you don’t have any RRSP savings? You can get your savings working for you in a tax free and efficient way. This strategy might be right for you.

If you have room under your RRSP contribution limit you could secure a RRSP loan and contribute those funds and then later use them towards your down payment. If you have funds sitting in unregistered savings you could also move those into a registered account.

If you aren’t sure whether you have room to contribute, check your Notice of Assessment (NOA) for last year. Each year you are allowed a percentage of your income to contribute to a RRSP and the amount is carried forward and added to the next year’s total either partially or in full if you haven’t contributed.

It’s important to note that the funds you plan to withdraw and put towards the purchase of your home, must be in your account for 90 days prior to your withdrawal.

You do not need to use the withdrawn funds for only your down payment as they may be used for any purpose that assists with the purchase of your first home:

• closing costs
• paying off outstanding debt
• renovations, etc.

You must have a written contract in place agreeing to purchase a home and the home must be owner-occupied within one year.

If you have used the Home Buyers’ Plan in the past, but have not owned a home for four years, you may qualify to withdraw from your RRSP again as long as you or your common-law partner or spouse did not occupy a home that either of you owned in that four year period.

If you would like more information on the RRSP Home Buyers’ Plan, please give me a call at 1-888-561-2679 or email [email protected] and I can give you some guidance and help you decide what is right for your situation.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.