Are you figuring out your new home finances?

Have you considered the Home Buyers' Plan?

The Home Buyers' Plan (HBP) is a Canadian government program that allows qualifying individuals to withdraw up to $25,000 per year from a registered retirement savings plan (RRSP) to build or buy a home for themselves or for a family member with a disability.

Rules on Participating in the HBP

In order to qualify for the HBP, you first need to determine your eligibility. You must meet these two conditions:

• You're buying/building your first home; and

• You have a written agreement to buy/build a home for yourself.

If you're not sure whether or not you qualify as a first-time homeowner, click here.

If you don't meet the above eligibility requirements, you can still qualify for the HBP if you have a written agreement to buy/build a home for a family member who has a disability OR you are helping a family member with a disability buy/build a home for themselves.

In addition, there's a key restriction on participating in the HBP: either you or the family member with a disability must live in the home for one year. Furthermore, you must use the home as your primary residence. If you're assisting a family member with a disability to buy/build a home, that person must occupy the home for one year, and it must be their primary residence.

Note: If you have participated in the HBP before, you can do so again as long as your repayable HBP balance on the first of January of the participation year is zero.

Furthermore, you must also meet the necessary conditions to withdraw money from your RRSP:

• You have to be a resident of Canada.
• You have to make all the needed withdrawals in the same calendar year.
• You're limited to a maximum of $25,000 per RRSP account.
• Only the person who benefits from the RRSP can withdraw funds from the RRSP. If you have more than one RRSP, you can withdraw up to $25,000 from each one as long as you are the beneficiary of each RRSP.
• The money withdrawn from the RRSP has been in the RRSP for at least 90 days.
• You, your spouse, and/or the person you're assisting in buying a home cannot own the home for more than 30 days before you make the withdrawal.
• You must buy/build the home or assist a family member in buying/building the home before the first of October of the year after you make the RRSP withdrawal.

How to Transfer Funds from an RRSP to the HBP

To proceed, you must fill out a T1036 form. 

Once you've decided to participate in the HBP, there are certain restrictions that will come into effect:

• Any funds deposited into your RRSP 89 or fewer days before withdrawing funds for the HBP cannot be deducted on your taxes for the year.
• Likewise, funds withdrawn from your spouse's RRSP during the 89 or fewer days before participating in the HBP cannot be deducted.

In short, the only way to have the withdrawn RRSP amount be fully deductible (for funds withdrawn 89 or fewer days prior to participation), you must make an equal contribution to the RRSP.

For more information on your RRSP, view the T4040 form.

How RRSP Funds Are Repaid

Once you've withdrawn RRSP funds for use in the HBP, how do you pay these monies back?

The repayment period starts the calendar year after you withdrew funds from the RRSP. Yes, you can choose to make payments earlier, but this will not change the mandated repayment period. If you decide to pay early and pay more than is required for the first year, this will go towards paying down your overall HBP balance.

Under Canadian law, you have 15 years to fully repay the money you withdrew to participate in the HBP. You can pay off the balance before 15 years have elapsed without any penalty. 

The Canada Revenue Agency will send you a special HBP statement that will include:

• How much you've repaid so far;
• How much you have left to repay; and
• The minimum you'll need to pay back to your RRSP for the next year.

Note: The first repayment is due within the first 60 days of the year following the year you initially withdrew the funds. You'll need to fill out a Schedule 7 RRSP form on your taxes.

For more information on calculating and understanding your HBP repayments to your RRSP, click here.

How to Stop Participating in the HBP

Generally speaking, once you've withdrawn money from an RRSP and applied it to the HBP, it's not possible to cancel participation in the program.

There are, however, some limited exceptions:

• You didn't buy/build the qualifying home; or
• You stopped being a resident of Canada before buying/building the home; or
• The person you're assisting did not buy/build the home; or
• You stopped being a resident of Canada before the person you were assisting built or bought their home.

Note: If you are eligible to stop participating and decided to stop participating, any money that you withdrew will not be taxed. If you choose not to pay it back into the RRSP by the end of the year, it will be included as income on your taxes.

The Home Buyer's Program is a great way for qualifying individuals to utilize the funds in their registered retirement savings plan with minimal effect on their taxes. 

Whether you're buying/building your first home or want to assist a family member with a disability to buy/build their first home, the HBP is a great program designed to help deserving individuals get approved for a first-time mortgage and land the home they've always wanted!

Be sure to read all the relevant rules and restrictions before deciding to participate.

Photo credits: family meeting with agent, checking bills, calculating