The Home Buyers Plan allows you to borrow up to $25,000 from your RRSP’s tax free to buy or build a home. Each plan holder may withdraw up to the $25,000 limit their RRSP accounts except for locked-in accounts. This means that the combination of withdrawals from you and your spouses’ RRSP’s cannot exceed $50,000.
Who Qualifies For The HBP?
You can use the HBP if:
- You or your spouse have not owned and occupied a home as your principal residence in the preceding 4 years, or
- You are buying or building a home for a disabled person who is related to you.
Do The Funds Have To Be Used To Build or Buy A Home?
No. You can use the funds for any purpose you like. You only have meet the qualifications.
Is There Any Tax On the HBP Withdrawal?
The withdrawal under the HBP is tax-free but there are things you have to do to ensure the withdrawals remain tax free.
- The funds withdrawn must be used to acquire a home before October 1st of the year following the withdrawal.
- The funds must be repaid to your RRSP over a maximum of 15 years. These repayments begin in the second year following the HBP withdrawal. The minimum repayment is 1/15th of the actual HBP withdrawal. If you do not make a repayment, 1/15th of the withdrawal will be added to your income in the year is was due.
- To ensure you have disclosed your repayment appropriately, be sure to complete Schedule 7 of your Federal Income Tax Return.
First Time Home Buyers Tax Credit
If you bought a home after January 27, 2009, you may be entitled to claim the $2,000 first time home buyers tax credit. This is a non-refundable tax credit that can be claimed either by the purchaser of the home or their spouse.
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Dear Tax Guy,
Many thanks for your response. CRA asked me to file as a non resident. Per schedule 1 calculation, 15% taxes, but not more than 30%. Let us wait and see. Once again, thank you.
Hi, Tax Guy:
My common law partner does not meet the requirement of first time home buyer, But I am first time home buyer, Am i still eligible to withdraw $25,000 from my RRSP account?
Unfortunately no. You both have to qualify.
Just to clarify, similar to above (I am not eligible anymore), if my new wife had been saving to use the HBP, since we were married over the summer, she can no longer withdraw?
Kyle,
You both must qualify and be eligible for the HBP. If either of you are not eligible, then neither are.
hi,
I plan to buy a new house which is due for completion in april 2012. i want to withdarw funds from rrsp under hbp. Since it is over the stipulated 1 yr condition in hbp does it still count as having met the HBP conditions since the agreement is in effect with the builder.
Secondly my wife’s rrsp account has $3000 which was contribution from me in 2009. If she withdraws it is she responsible for hbp repayments or wld it be me.
Thanks
In order to qualify, the home must become habitable before October 1st of the year after the HBP withdrawal. Therefore, you would not be able to withdraw under the plan until January 2nd 2011.
Only the person allowed to withdraw from the RRSP is the person who can participate under the plan. Therefore, the RRSP for your wife can be withdrawn by your wife under the HBP.
Suppose I use $50K from an RRSP to pay for a house under the HBP. When I repay that $50k, does it raise my RRSP deduction limit in the years I repay it? So suppose I put $22k in an RRSP the year after purchasing the house. Can I put in an additional $5k, say, as part of the repayment not exceed the deduction limit? Would the $22K be exempt from tax and the additional $5k not exempt but not incurring a excess contribution charge? Would the $5k also be tax exempt?
thanks
You can only withdraw $25,000. Your spouse could withdraw another $25,000.
The withdrawal is tax-free and if you don’t pay it back within the required time frame, the withdrawal is added to your income. Your can make lump sum repayments as well. You report all repayments under the plan on your tax return.
There is no effect on your RRSP contribution room and you can’t take any future deductions.
Hi, I really need advice. My tax return was re-assessed and the $20k I withdrew under the HBP was included in my income (2007). It now appears I have a debit. Can you help me understand why this was done and what should I do as a next step?
Your notice of assessment or reassessment should tell you why this occurred. It may be because you didn’t meet the requirements under the HBP that the entire amount was added back to your income.
Review your NOA and then contact the CRA for clarification. If you didn’t satisfy the HBP conditions, then you have a tax bill and there is little you can do.
Hi, I’ve contacted the CRA as the NOA did not state the reason(s) why the HBP became taxable (2 yrs after I withdrew it). Thanks for your advice!!
1/15th of the withdrawal is taxable if it was not repaid and reported as such on your tax return. The first repayment would be required in the 2nd year following the withdrawal.
Let us know what the response was from the CRA.
HI,
I have an individual rrsp worth $ 6000.00 and i a spousal rrsp where annuitant is my wife worth $21000.00, our closing is by end dec 2010.
Question:
How much both of us can withdraw from the plan?
How will be the repayment to be done, ie for spousal withdrawal who should be responsible??
thanks
anish
You can withdraw $6,000 and your wife can withdraw $21,000 assuming you qualify under the HBP.
You will be responsible for repaying your $6,000 and your wife the $21,000.
Hi Tax Guy,
I bought a condo that will be habitable late 2011. I have unused contribtuions for 2010 that will carry over of 13k; I expect another 3k for 2011 (I am a student and only worked a summer term). My intention is to get a loan or borrow from family of 16k at start of 2011, wait 90 days and file T1036 and take out all 16k +2-3k already in my RRSPs, basically tax-washing my 19k by March because I could have to close anywhere from Jun-Dec. The 2-3k in there will also do alot more against my student loc at 4% than earing .25 in bank, so I want to do this ASAP. I know I will be charged for withdrawal so one transaction is ideal. Does all this make sense?
Thanks!
I assume you qualify as a first-time home buyer. As long as you wait the 90 days after the contribution, you can withdraw anytime. I would suggest you wait until you need the funds since many banks forbid using a line of credit to fund real estate purchases. You might want to run this by your bank first.
Dear Tax guy,
I have outstanding funds owed back to my rrsp’s as I have taken advantage of the first time home buyers and I now live overseas (I have just learned I need to repay!!!). I would much rather pay back the funds as opposed to claiming the amount on my income for 2010. I have unfortunately missed the 60 day repayment date. Are there any exceptions to that 60 day period? I’m only over by about a month – and I only just realised I have to pay back the funds! I really don’t want to claim it on my income….
Any insight or advice? Thanks, Suze.
Suzie,
Unfortunately, you have missed the deadline.
How the hell are people supposed to know about this when no one tells you?!?!
Are you sure there is no appeal process? I only missed this deadline by about a month and I simply did not know I had to all pay the funds back – let alone in 60 days!
This will cost us a combined 15k on our taxes this year. I am devastated and desparately trying to find a way around this…
I am absolutely certain there is no appeals process. Although this may sound crass, it is by no means indented to be, but the adage that “ignorance of the law is no excuse” certainly applies.
I do understand you frustration, but what you have to understand is that there are a number of income tax (and other) consequences of ceasing to be a resident of Canada. Significant planning is required before departure.
You can call the CRA and ask what you options are and perhaps offer to repay the tax owing over a period of time.
I keep reading that you are required to repay 1/15 of the HBP funds per year. But if you start repaying the funds in the 2nd year following the withdrawal, doesn’t that mean you only have 13 years left? And so doesn’t that mean you have to replay 1/13 per year?
You have to repay the withdrawal over a period that does not exceed 15 years. If you make repayments in the two year period before the payments are required, these prepayments reduce your first year’s payment. Any excess will reduce the HBP balance and any remaining payments over the repayment period.
See this page from the CRA.
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