What Is the Home Buyers’ Plan and How Does It Work?

The Home Buyers’ Plan (HBP) is a Canadian government initiative designed to assist individuals in purchasing or constructing their first home. This program allows eligible participants to withdraw funds from their Registered Retirement Savings Plans (RRSPs) without incurring immediate tax penalties. The HBP functions as an interest-free loan from retirement savings, providing a valuable resource for a down payment or other housing-related expenses. The HBP aims to enhance the affordability of homeownership for many Canadians.

Participant and Property Conditions

To participate in the Home Buyers’ Plan, individuals must meet specific eligibility requirements, primarily being considered a “first-time home buyer.” This definition generally applies if you have not owned and occupied a home that you or your spouse or common-law partner owned in the four calendar years preceding the HBP withdrawal. Exceptions exist for individuals purchasing a home for a specified person with a disability, where the first-time home buyer condition may be waived. Participants must be residents of Canada from the time of their RRSP withdrawal until the qualifying home is purchased or built.

Funds withdrawn from an RRSP for the HBP must have been held in the account for at least 90 days before the withdrawal date. Certain types of RRSPs, such as locked-in or group RRSPs, may not permit HBP withdrawals.

The property intended for purchase must also meet specific criteria to qualify under the HBP. It must be a housing unit located in Canada and serve as the participant’s principal residence within one year of buying or building it. This includes a broad range of residential properties such as single-family homes, condominiums, townhouses, and mobile homes.

For those purchasing a home for a relative with a disability, the property must be better suited to the needs of the person with the disability or more accessible, and intended as that person’s principal residence within one year of acquisition or construction. A written agreement to buy or build a qualifying home is a prerequisite for participation.

Accessing Funds

Individuals can withdraw funds from their Registered Retirement Savings Plan (RRSP) under the Home Buyers’ Plan once eligibility conditions are met. As of April 16, 2024, the maximum amount an individual can withdraw is $60,000. For couples, where each individual meets the eligibility criteria, they can collectively withdraw up to $120,000 from their respective RRSPs.

To initiate a withdrawal, participants must complete Form T1036, “Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP.” This form requires the participant to fill out Area 1, providing personal details and confirming eligibility. The completed form is then submitted to the financial institution holding the RRSP, which will complete Area 2. A separate Form T1036 is required for each withdrawal made, even if multiple withdrawals occur from different RRSP accounts.

Multiple withdrawals are permitted, but they must occur within the same calendar year as the first withdrawal, or in January of the following calendar year. The funds must be withdrawn no later than 30 days after the closing date of the qualifying home purchase. Funds withdrawn within the HBP limit are not subject to immediate tax withholding by the RRSP issuer.

Contributions made to an RRSP within 89 days prior to an HBP withdrawal may not be fully deductible. This rule prevents individuals from contributing funds solely to withdraw them shortly after for the HBP and claiming a tax deduction. The HBP is intended to allow access to existing RRSP savings, not to facilitate a new, tax-deductible contribution for a home purchase.

Repaying Withdrawn Amounts

Repaying amounts withdrawn under the Home Buyers’ Plan ensures the funds eventually return to the participant’s Registered Retirement Savings Plan (RRSP). The standard repayment period is 15 years. The repayment period begins in the second calendar year following the initial withdrawal. For instance, if a withdrawal occurred in 2023, repayments would start in 2025. However, a temporary measure for withdrawals made between January 1, 2022, and December 31, 2025, extends the grace period, deferring the start of repayment to the fifth year after the withdrawal.

The minimum annual repayment amount is calculated by dividing the total withdrawn amount by 15. For example, a $60,000 withdrawal would require a minimum annual repayment of $4,000. These repayments are made by contributing to an RRSP and then designating these contributions as HBP repayments when filing income taxes. This designation is done using Schedule 7, “RRSP, PRPP and SPP Contributions and Transfers.”

Contributions designated as HBP repayments do not count towards an individual’s regular RRSP contribution limits and are not tax-deductible. If the minimum annual repayment is not made in full, the shortfall will be included as taxable income for that year. The Canada Revenue Agency (CRA) provides an annual HBP statement of account with the notice of assessment, detailing the remaining balance and the next year’s minimum required repayment.

Participants have the flexibility to repay more than the minimum amount in any given year or to repay the entire outstanding balance early. Making accelerated repayments reduces the overall HBP balance and can decrease future minimum annual repayment obligations. Even if early repayments are made, the original 15-year repayment period remains the framework for tracking the obligation.