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

The Home Buyers’ Plan (HBP) is a federal program in Canada designed to assist individuals in purchasing or constructing their first home. This initiative allows participants to withdraw funds from their Registered Retirement Savings Plans (RRSPs) without immediate tax implications, provided the withdrawn amounts are repaid over time. The HBP offers a temporary, interest-free loan to facilitate homeownership.

Understanding the Home Buyers’ Plan

The HBP is a loan from your own RRSP, not a government grant, meaning the funds must eventually be returned to the plan. An individual can withdraw up to $60,000 from their RRSP in a calendar year without facing tax penalties, provided the withdrawal meets specific conditions. If both partners in a couple are eligible, their combined withdrawal limit can reach up to $120,000.

Eligibility and Preparing for Withdrawal

A person is generally considered a “first-time home buyer” if they have not lived in a home owned by themselves or their current spouse or common-law partner in the four calendar years preceding the withdrawal, including the period up to 31 days before the withdrawal. Exceptions exist for individuals purchasing a home for a person with a disability or in cases of relationship breakdown, where the “first-time home buyer” condition may be waived for certain participants.

The home intended for purchase must be a housing unit located in Canada and intended as the individual’s principal place of residence within one year of buying or building it. Qualifying homes include various types such as single-family homes, semi-detached homes, townhouses, condominiums, and mobile homes. Additionally, the funds designated for withdrawal must have been held within the RRSP for at least 90 days before the withdrawal date to ensure tax deductibility of contributions.

To formally request a withdrawal, individuals must complete Canada Revenue Agency (CRA) Form T1036, “Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP.” This form requires specific personal details, including your Social Insurance Number (SIN), RRSP account numbers, and the address of the qualifying home. It also asks a series of questions to confirm eligibility, such as residency status and intent to occupy the home as a principal residence.

The Withdrawal and Fund Disbursement Process

Submit the completed CRA Form T1036 to the financial institution holding the Registered Retirement Savings Plan (RRSP). The completed Form T1036 must be provided to your RRSP issuer, who is responsible for filling out a specific section of the form. Submission methods can vary, often including manual submission of a physically signed document or electronic submission through secure online portals provided by financial institutions.

After the financial institution receives the completed and signed form, they will process the withdrawal. The typical processing time for an HBP withdrawal is generally within a few business days. Funds are then released from the RRSP and disbursed to the individual, commonly through direct deposit or cheque, depending on the financial institution’s procedures. All HBP withdrawals must occur within the same calendar year as the first withdrawal, or in January of the following calendar year.

Repaying Your HBP Loan

Repaying the funds withdrawn through the Home Buyers’ Plan spans a 15-year period. The repayment period usually begins in the second calendar year following the year the first HBP withdrawal was made. For withdrawals made between January 1, 2022, and December 31, 2025, a temporary relief measure extends the start of the repayment period by three years.

Each year, you are required to repay at least one-fifteenth of the total amount withdrawn. For example, if the maximum $60,000 was withdrawn, the annual minimum repayment would be $4,000. To make a repayment, you must contribute funds to any of your RRSPs and then designate that contribution as an HBP repayment when filing your income tax return on Schedule 7 of your T1 income tax return.

There is flexibility in repayment, allowing individuals to repay more than the minimum required amount in any given year, or even to repay the entire outstanding balance early. If you repay more than the minimum, your future minimum annual payments will be adjusted downward. The Canada Revenue Agency (CRA) tracks your HBP balance and repayment history.

Understanding Non-Repayment Consequences

Failing to make the required annual repayment to your Home Buyers’ Plan (HBP) can lead to specific tax implications. If you do not repay the minimum amount due for a given year, the shortfall will be added to your taxable income for that year.

Repayments made to the HBP do not generate new RRSP contribution room. If a required repayment is not made and the amount is added to your taxable income, that specific portion of your RRSP contribution room is permanently lost. The Canada Revenue Agency (CRA) will continue to track your outstanding HBP balance, and the annual minimum repayment obligation persists until the full amount is repaid or included in your income.