02/14/2019 – By Jason Smale
Are you thinking of purchasing, or building a new home? If so, and you need to withdraw funds from your RRSP you can do so without penalty under the Home Buyers Plan.
What is the Home Buyers Plan?
The home buyers plan is a provision extended to Canadian’s by the Canada Revenue Agency under the Canadian Income Tax Act. This provision allows the individual to withdrawal up to $25,000 from their RRSP without paying tax at the time of withdrawal.
If your partner qualifies as a first time homebuyer as well, you can each withdraw $25,000 for a total of $50,000 withdrawn from the Register Retirement Savings Program for the purposes of buying or building your home.
You must be considered a first-time homebuyer unless you are a person with a disability. To qualify as a first-time homebuyer, you must not have occupied a house that you or your current spouse or common-law partner owned in the past four-year period. The four-year period rule begins on January 1st of the fourth year before the year you plan to withdraw funds from your RRSP.
Special consideration: You may still be considered a first-time homebuyer and qualify for the home buyers plan, even if your current spouse or common-law partner previously owned a home.
An eligible home is a home purchased or built before October 1st in the year following the RRSP withdrawal. Example, if you withdrawal funds in 2018, you have until October 1st, 2019 to buy or build the home. If the home purchased or constructed, is not the one identified in the written agreement with the Canada Revenue Agency at the time of the withdrawal, you must advise the CRA.
To qualify for the home buyers plan you must be purchasing or building a qualifying home, before October 1st of the year after the year of the withdrawal; and you buy or build the home alone or with one or more individuals.
Consideration is made for people with disabilities under the home buyers plan. Under the HBP, the home must be a better fit for the needs of the individual with disabilities than their current home. Under this provision, you may withdraw funds if:
- You are a person with a disability;
- You are buying or building a house for a person with a disability;
- You are helping a related person with a disability to buy or build a home.
How to make your withdrawal
To withdraw funds from your RRSP under the HBP, you must use the form T1036 Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP.
After filling out Area 1
- Part A – Confirm eligibility for withdrawal.
- Part B – Personal identification and geographic location information
- Part C – Withdrawal request, including amount date and signature certifying the request.
You will need to hand the T1036 form into the institution managing your RRSP investment. The institution managing your RRSP investment will then fill out Area 2. You can make a single withdrawal of funds or a series of withdrawals if they occur within one calendar year from the date of the first withdrawal.
Conditions exist within the Home Buyers’ Plan which may restrict a registrant from claiming tax deductions in the current year for any contributions made to the RRSP within 89 days of the withdrawal of funds.
During the 89 days leading up to the withdrawal, you cannot deduct the amount by which your contributions exist the fair market value of your current RRSP after the withdrawal.
Repayment of RRSP’s under the Home Buyers’ Plan
Repayment of the funds you’ve withdrawn under the HBP starts the second year after the year you have withdrawn the funds from your RRSP.
The repayment terms of the HBP program are structured to have the homebuyer repay the funds withdrawn from their RRSP. Each year, the Canada Revenue Agency will send you a Home Buyers’ Plan (HBP) statement of account, with your notice of assessment for the prior year’s tax return.
You can always contribute more than the required amount in any given year, the excess payment will reduce the amount required to be repaid in future years. The repayment of HBP is divided into equal years, so in this instance the excess payment will reduce the minimum amount required to be paid in each subsequent year equally.
If you happen to contribute less than the minimum amount or fail to make a contribution to your RRSP for the year you must claim the annual minimum amount on your tax return on line 129.