Home Buyer’s Plan – Use your RRSP to help buy or build a home

The Home Buyer’s Plan (HBP) allows you to borrow funds from your RRSP to buy or build a qualifying home, if

The maximum amount that can be borrowed was increased to $25,000 by the Federal 2009 Budget, which also announced a new First-Time Home Buyers’ Tax Credit.

Note that your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the Home Buyer’s Plan, or the contributions may not be deductible for any year.  In other words, if RRSP contributions are made in the 89-day period just prior to an HBP withdrawal from the RRSP, the value of the RRSP after the HPB withdrawal must be at least equal to those contributions.

Income tax will not be deducted from the amount withdrawn, and the withdrawal amount will not be included in your income.  The funds must be repaid over a maximum of 15 years, starting the second year following the year in which they are withdrawn.  Each year that a repayment is due but not paid, the amount due (1/15th of the amount borrowed) will be included in taxable income.

If you buy the home with your spouse, common-law partner, or other individuals, each of you can withdraw up to $25,000.

A qualifying home means

You must buy or build the qualifying home by October 1 of the year after the year of withdrawal.  There are other conditions which must be met in order to qualify for the Home Buyer’s Plan, including your intent to occupy the home as your principal residence no later than one year after building or purchasing it.  Some conditions must be met before applying to withdraw funds and other conditions must be met when a withdrawal is made.  One of the conditions that must be met before applying to withdraw funds is that you have to enter into a written agreement to buy or build a qualifying home.  For more information, see the Canada Revenue Agency (CRA) information on the Home Buyer’s Plan, including conditions for participating in the HBP.

Can funds be used to buy land on which the qualifying home will be built?

The Income Tax Act does not specify that the funds withdrawn must be used to pay for the house that is being built.  It specifies that the amount withdrawn must be received as a result of making a written request in a prescribed form.  The form is T1036 – Home Buyer’s Plan (HBP) Request to Withdraw Funds from an RRSP.  The taxpayer must provide the address of the qualifying home being bought or built, and must assert that a

written agreement has been entered into for the purchase or building of the qualifying home (not for the purchase of land).  If all conditions to participate in the HBP are satisfied, the funds can be used for any purpose.  See the topic “Can I use funds withdrawn under the HBP for other purposes?” in the CRA publication RC4135 Home Buyer’s Plan Guide.

What if I withdraw the HBP money, and then don’t meet all the conditions?

If you don’t meet all the conditions after you have made the HBP withdrawal, your withdrawals will be included in income for the year of the withdrawal.  If CRA has already issued a notice of assessment for the year of the withdrawal, they will reassess your return to include the withdrawals.  This may be avoided if you are able to cancel your participation.

Home Buyer’s Plan Cancellation

If, after withdrawing funds as a Home Buyer’s Plan withdrawal, circumstances change and you don’t meet all the conditions, you can cancel your participation in the HBP by completing the cancellation form, and you have a limited time to repay the funds.  If you have met all the conditions of the HBP, you cannot cancel your participation.  You can cancel your participation if you have met all the conditions except for one of the following:

If you cancel your participation because a qualifying home or replacement property was not purchased or built, cancellation payments to your RRSP must be made by December 31st of the year after the year you withdrew the funds.

If you cancel your participation because you became a non-resident after you withdrew the funds, the repayment due date will depend on when you became a non-resident:

If you became a non-resident after filing your tax return for the year you withdrew the funds, you must repay the funds by December 31st of the year after the year of the withdrawal.

Any part of the withdrawn funds that are not repaid by the due date must be included in income on line 129 of your tax return for the year that you withdrew the funds.

Cancellation payments can be made to any of your RRSPs or to a new RRSP, with any issuer.

For additional information on the Home Buyers Plan please the following link: Home Buyers Plan