What is the Home Buyers' Plan (HBP)?
Good financial planning is important when you’re preparing to buy a house, since you need a down payment of 5% or more. Many first-time home buyers take advantage of the Home Buyers’ Plan (HBP) to get there.
This government program lets eligible first-time home buyers withdraw a portion of the money in their Registered Retirement Savings Plan (RRSP)—up to $35,0001 per person—tax-free, to use as a down payment. The money must:
• have been deposited in a RRSP more than 90 days previous,
• be withdrawn 30 days after purchasing the home, and
• be repaid into an RRSP over a maximum of 15 years.
Repayment begins on the second year following the withdrawal. If the participant repays less than the amount required per year , they must declare the difference on their tax return as income. Note that the home must be located in Canada and be purchased or built before October 1st of the year following the withdrawal.
To be eligible for the HBP, buyers must meet certain criteria. Namely, the home has to be their main residence and they must live in it the first year following the purchase.
Buyers must also meet at least one of the following three conditions:
• Be purchasing their first home
• Not have been a homeowner for at least four years
• Be separated and have completely repaid their RRSP
To access their RRSP, buyers must have a written agreement to purchase (Offer to Purchase) or build a home. The financial institution or issuer of the savings plan will need it to proceed with the next steps.
Non-refundable income tax credit
First-time home buyers (or buyers who have not owned a home for the last four years) can also take advantage of the First-Time Home Buyers' Tax Credit . With both the federal and provincial contribution, this credit can total $1,500 in tax savings, which comes in handy for unforeseen expenses, small renovations or even beginning to repay the RRSP.