RRSP Home Buyers' Plan (RSP HBP)

The Home Buyers’ Plan (HBP) is a program under which you can, generally, withdraw up to $35,000 from your registered retirement savings plan (RRSPs) to buy or build a qualifying home. Withdrawals that meet all applicable HBP conditions do not have to be included in your income, and your RRSP issuer will not withhold tax on these amounts. Generally, you are not allowed to withdraw funds from a locked-in RRSP or an employer sponsored group RRSP for purposes of the HBP. Click here to see the Canada Revenue Agency Request form that you'll need to complete for the RSP HBP withdrawal.

For those of you who may not be aware, under normal circumstances (ignoring the special treatment for HBP), when you withdraw money from your RSP, your bank will withhold (on your behalf) a specified percentage of your withdrawal and give you the amount net of the withholding. Eventually, you'll receive a tax slip that shows the amount you withdrew along with the amount withheld. These amounts are reported on your tax return relating to the year of the withdrawal. The result is additional tax owed on your RSP withdrawal. 'Beancounters' will tell you this makes sense considering you saved taxes in the year you made the RSP contribution!

Let's get back to the RSP HBP - Before you can withdraw funds you must have entered into a written agreement to buy or build a qualifying home which you must occupy no later than one year after buying or building the home. In addition, a qualifying home must generally be acquired before October 1 of the calendar year following the year of withdrawal. So - make sure you know the occupancy and acquisition deadlines. If you don't meet all the conditions after you've made the HBP withdrawal, your withdrawals will be included in income for the year of the withdrawal! However, there are special rules that apply if you cancel your participation in the HBP (such as if the qualifying home isn't built or purchased). If you've cancelled your participation in the HBP (assuming you've met the eligibility requirements), cancellation payments to your RRSP must be made by December 31 of the year after you withdrew the funds. Click here to read about how to cancel your participation in your RSP HBP.

If you buy the qualifying home together with your spouse or common law partner, each of you can withdraw up to $25,000. You cannot withdraw an amount from your RRSP under the HBP if you or your spouse owned the home more than 30 days before the date of your withdrawal. Translation - The withdrawal must be made no later than 30 days after the purchase of the qualifying home.

• Up to $35,000 per person could be withdrawn tax-free from RRSPs to buy or build a principal residence. Couples — including common-law — will be able to withdraw up to $70,000.

• You have to meet the first-time buyer’s condition unless you are a person with a disability buying or building a qualifying home or you're helping a related person with a disability buy or build a qualifying home. You are not considered a first-time home buyer if you or your spouse owned a home that you occupied as your principal place of residence in the past 5 years. To determine past 5 years, the 4 years preceding the year you make your withdrawal plus the period in the year you make your withdrawal ending 31 days before your withdrawal is the rule adopted. For example, if you withdrew funds on March 31, 2016, the 4 year period begins on January 1, 2012 and ends on February 29, 2016. As you can see, even if you or your spouse or common-law partner has previously owned a home, you may still be considered a first-time home buyer! You can qualify for the HBP more than once as long as any amounts previously received under the HBP were fully repaid prior the beginning of the year of re-participation and so long as you meet the other eligibility criteria. Also, if you have a spouse or common-law partner, it's possible that only one of you is a first-time buyer. By the way, common-law for a couple without kids is defined by CRA as someone you've been living with in a conjugal relationship for at least 12 continuous months. For those with kids, as long as it's a conjugal relationship and both spouses are parents to the child by birth or adoption, it's common law. There's a little more to it but that's the broad strokes for our purposes.

• Qualifying home buyers withdrawing funds do not have to pay income tax on the amount withdrawn, as long as the funds are repaid into an RRSP in the future. The 15-year repayment period will begin in the second calendar year following the calendar year in which the withdrawal is made. In addition, a qualifying home must generally be acquired before October 1 of the calendar year following the year of withdrawal. For example, those making withdrawals under the plan in 2016 will have until October 1, 2017 to acquire a qualifying home and their first annual repayment will be due by the end of 2018 or the first two months of 2019.

• A special rule may deny a tax deduction for part or all of your contributions made to an RRSP that are withdrawn under the RRSP HBP within 90 days of the RRSP contribution. i.e. You make contributions to your RRSP and within 90 days withdraw funds under the RRSP HBP; there may be a denial of the tax deduction but please read on. For contributions made to an RRSP in the 89 day period prior to the HBP withdrawal to be fully deductible, the value of that RRSP immediately after withdrawal of funds must exceed those contributions.  Let's look at an example. Say you contributed $10,000 to your RRSP and less than 90 days later, you withdraw $25,000 under the HBP for a downpayment on a home. Let's say that the fair market value of that RSP (from which you're funds are coming from) at the time of withdrawal was $25,000. By the way, the $25,000 is the FMV of only the RSP from which you withdrew under the HBP; the FMV applies on a plan by plan basis (i.e. individual vs spousal vs group, etc). Here's how it works:

Total RRSP contributions made within 90 days of HBP withdrawal  $10,000
Less: FMV of your RRSP immediately after withdrawal                $          0 ($25,000 FMV before w/d - $25,000 w/d)
Amount that is NOT deductible in any year                                      $ 10,000  A negative is treated as a 0

* The $10K contribution is not deductible

Existing homeowners can use the HBP to purchase a more accessible home or a home for a disabled dependent relative where the individual withdrawing the funds:

• qualifies for the disability tax credit (DTC) and is buying a home that is more accessible for the individual or is better suited for the care of the individual;

• is related to a disabled individual who qualifies for the DTC and is buying a home for the benefit of the disabled individual that is more accessible for, or better suited for, the care of the disabled individual, or;

• is related to a disabled individual who qualifies for the DTC and is withdrawing an amount for the disabled individual to buy a home that is more accessible for, or better suited for, the care of the disabled individual