In 2024, the Canadian government made significant changes to how RRSPs can be used to contribute to a down-payment on a home, with the ultimate goal to make homeownership more achievable for Canadians. The withdrawal limit for the Homebuyer’s Plan (HBP) was increased from $35,000 to $60,000 per individual. This means that a couple with eligible RRSPs can now withdraw up to $120,000 in total under the program, significantly boosting their ability to save for a down payment.
What is the Homebuyer’s Plan?
The Homebuyer’s Plan (HBP) is a government program that allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to help with the down payment on a home. This initiative aims to make homeownership more accessible by enabling Canadians to tap into their retirement savings for a qualifying home purchase or new construction.
A "qualifying home" is a housing unit located in Canada, whether it's an existing home or one under construction. The program can also be used to purchase a home for a disabled family member, provided certain conditions are met.
An appealing aspect of the HBP is that withdrawals are not taxed at the time of withdrawal, as long as eligibility requirements are met, allowing you to use the funds without the immediate tax burden. However, the money must be repaid over time.
Eligibility Criteria
To participate in the Homebuyer’s Plan, you must meet the following key requirements:
First-time homebuyer status: You must be a first-time homebuyer. If you are purchasing a home for a specified disabled person, this condition is waived.
Qualifying home: You must have a written agreement to buy or build a qualifying home. The home can be for you or for a specified disabled family member.
Residency: You must be a resident of Canada from the time of your first eligible withdrawal until you purchase or build the home.
Principal residence: You must intend to occupy the home as your principal place of residence within one year of purchasing or building it. If you’re buying for a disabled family member, they must also plan to make the home their principal residence within a year.
In addition to meeting these criteria, there are conditions to ensure that withdrawals are treated as eligible:
Previous participation: If you’ve used the HBP before, your balance must be zero at the start of the calendar year you plan to make a withdrawal.
Withdrawal limit: You can withdraw a maximum of $60,000 from your RRSP under the HBP.
RRSP withdrawals: Withdrawals can only be made from your RRSP and must be completed in the same calendar year as your first withdrawal, or in January of the following year.
Meeting these conditions ensures your withdrawal will be considered eligible and not taxed at the time of withdrawal.
How it Works
If you meet the eligibility criteria, the next step is to apply for the Homebuyer’s Plan and begin the process of withdrawing funds from your RRSP. Here’s how it works:
Complete the application: To start, you’ll need to fill out the Home Buyers' Plan request form (Form T1036) before your closing date. This form is required to initiate the withdrawal from your RRSP.
Check with your bank: Different financial institutions may have specific requirements for requesting a withdrawal, so it's important to check with your bank ahead of time to avoid any delays in receiving your funds.
Multiple withdrawals: If you plan to make multiple withdrawals, they must all be made within the same calendar year as your first withdrawal. You can also make a withdrawal in January of the following year if needed.
Funds usage: Once the funds are withdrawn, they will be deposited into your account and can be used directly towards your down payment.
Deadline for withdrawal: While the funds must be used for your home purchase, you have up to 30 days after your closing date to make the withdrawal.
By following these steps, you can access your RRSP savings and use them to help cover the costs of purchasing your first home.
Repayment Terms
Once you’ve used your Homebuyer’s Plan to purchase your home, it’s time to start thinking about repayment. The amount you withdraw from your RRSP under the HBP must be repaid, with the following key terms:
Repayment period: You are required to repay the withdrawn amount over 15 years. The repayment typically starts the second year after your withdrawal.
Minimum repayment: Each year, you must repay at least 1/15th of the amount you withdrew. For example, if you withdrew the full $60,000, the minimum repayment each year would be $4,000.
How to repay: To make a repayment, you simply need to contribute to your RRSP. When doing so, you must designate the relevant portion of the contribution as repayment under the Homebuyer’s Plan on your tax return.
Flexibility: While you are required to make the minimum annual repayment, you are free to pay more than the minimum amount if you wish. Paying off more each year will reduce the overall repayment period.
Consequences of missed payments: If you miss the minimum repayment in any given year, the unpaid portion will be added to your taxable income for that year and taxed at your marginal rate.
Extended repayment window: For those who made withdrawals between January 1, 2022, and December 31, 2025, the repayment period has been extended. You now have up to five years to begin repaying the amount you withdrew, providing extra time and flexibility.
By following these repayment terms, you can gradually return the withdrawn funds to your RRSP without facing immediate tax consequences, while also having some room to manage your financial situation.
The Homebuyer’s Plan is a valuable tool for first-time homebuyers, offering a way to access your RRSP savings to help with the down payment on your first home.
If you’re planning to buy your first home in HRM, the Homebuyer’s Plan could be a crucial part of your financial strategy. Be sure to double-check the eligibility requirements, understand how to access the funds, and keep track of your repayment obligations to make the most of the opportunity.
If you have any questions or need guidance with your first home purchase, reach out for a free, no-obligation consultation. We’re here to help you navigate the process and make your dream of homeownership a reality!
*Disclaimer: This article is intended for general informational purposes and is not intended to provide any tax or financial advice to the reader. Please consult a qualified professional such as an accountant about your unique situation.
Author: Brynn Carmody
REALTOR®
HalifaxCondos.co
Keller Williams Select Realty