An HBP (Home Buyers’ Plan) allows you to withdraw money from your RRSP (Registered Retirement Savings Plan) to buy your first home.
Under the HBP, you can withdraw a portion or all of your RRSP to buy a property. You won’t pay income tax or a penalty when you make the withdrawal. However, you’ll have to put the money back into your RRSP in the following years. When you “pay back” into your RRSP, you won’t receive a tax deduction.
What is the maximum amount that can be withdrawn?
- You can’t withdraw more than $25,000. However, you can withdraw less.
- If you and your spouse together buy a home, you may each withdraw $25,000.
Most types of homes are eligible. For example:
- A single-family home
- A mobile home
- A condo or a semi-detached home
It could be an existing building or a new construction.
Can the HBP be used to buy something other than a first home?
Yes and no. To use the HBP, you must be the buyer of a first home that you plan to occupy. Nonetheless, you can use the HBP money as you please, whether or not it’s for your home.
How does the repayment work?
Each year, you’ll be required to pay back into your RRSP at least 1/15 of the amount withdrawn under the HBP. There is however a delay before the first repayment has to be made.
You won’t receive any tax deductions on the repayments
First HBP repayment
To start making HBP repayments, you'll be able to benefit from a delay. Your repayment period does not start in the year you withdrew funds from an RRSP for the HBP. The first payment can be made according to the following timeline:
For example, if you draw on an HBP on December 30, your repayment period will start no later than 2 years and 61 days afterwards. If you draw on an HBP on January 3, your repayment period will start no later than 3 years and 58 days afterwards. You won’t receive any tax deductions on the repayments.
What should you do before using the HBP? What’s involved?
Taking advantage of the HBP will help you buy a home but this might also impact:
- The income tax you pay in the years ahead
- Your retirement planning
You’ll also have to meet certain conditions.
The decision to use an HBP shouldn’t be taken lightly. The first step is to find out as much as possible about the plan.