For most individuals, the purchase of a first home will be the
largest purchase that they will make in their lifetime. Down
payments usually take years of diligent saving, which can be
difficult for individuals who need to balance saving while also
having to pay "mortgage-sized" rent amongst other
everyday living expenses.
What if you could afford your first home sooner by having
additional cash now for your down payment? Or have you considered
those other unexpected first time home buyer bills such as legal
fees, property tax and inspection services? Having had your savings
completely depleted to pay for your down payment, these other bills
can be stressful to have to bear and can lead to the painful
feeling of being "house poor".
The Home Buyer's Plan (HBP) is a program that has been made
available by the CRA to provide some tax relief for individuals who
are purchasing their first home. This program allows individuals to
withdraw up to a maximum of $25,000 from their RRSP for the
purchase of a first home without the usual tax implications of
withdrawing these funds.
Contributions to RRSP's result in tax savings and the
subsequent withdrawal of RRSP's result in taxable income,
however, the HBP allows the withdrawal of these funds from an RRSP
for the specified purpose of purchasing a first home with no tax on
the withdrawal. This means extra cash in your pocket now that would
have otherwise been paid in taxes.
Let's say, for illustrative purposes, that an individual
contributes $25,000 to their RRSP and has an average tax rate of
30%. This will provide the individual with savings of roughly
$7,500 of tax in the year that they contribute.
Using the scenario above where an individual has contributed
$25,000 to their RRSP and has received tax savings of $7,500, under
the HBP, the individual could then withdraw up to the maximum
$25,000 from their RRSP without repaying the $7,500 of tax. This
results in total available funds of $32,500 to use as a down
payment. Had this individual not first contributed the $25,000 to
their RRSP, then they would have $25,000 for a down payment; a full
By utilizing the HBP, an individual can leverage against their
own equity in their RRSP to receive the benefit of immediate tax
savings in the year of their home purchase. The HBP allows for the
deferral of tax which would have generally been paid on funds saved
for a down payment.
Any amounts withdrawn from your RRSP under the HBP will
subsequently have to be repaid to your RRSP, however, these amounts
are only required to be repaid, at a minimum, in equal installments
over a 15 year period starting the second year after
Again, using the same example of an individual withdrawing
$25,000 from their RRSP under the HBP, the minimum yearly RRSP
repayment is $1,667 ($25,000 * 1 / 15 years) over the 15 year
repayment period. These repayments would not result in the typical
tax savings on RRSP contributions as they are classified as a
repayment rather than a contribution. For the required yearly RRSP
repayment of $1,667 from the example above, $500 of estimated tax
savings at a 30% average tax rate would be foregone, thus,
deferring a total of $7,500 of tax over the 15 year period.
There are eligibility conditions which are laid out by the CRA
that must be met in order to qualify for the HBP and certain
conditions which must be met prior to the RRSP withdrawal. Each
individual's circumstances will differ so it is recommended to
meet with your trusted advisor to ensure that your home purchase
will qualify under the HBP conditions and to ensure that you have a
clear understanding of the withdrawal and repayment requirements in
order to avoid penalties and taxes prior to withdrawing any
Potential Future Revision to the HBP: As a result of the
newly elected Liberal government in Canada, there are some
potential upcoming revisions to the program. The Liberals are
proposing to change the rules to allow Canadians to withdraw from
their RRSP's more than just once, for the purpose of investing
in their home in the event of any unforeseen change in life
circumstance. Changes in life circumstance that would qualify may
include: the requirement to move for work, the death of a spouse,
taking in a senior relative or a divorce.
Until legislated, the HBP rules will remain as discussed in this
article and any tax legislation changes that would affect the HBP
rules will be discussed in Crowe MacKay's quarterly Video Tax
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The CRA provides new housing rebates for individuals who have purchased or built a new house or have substantially renovated a house or made a major addition to a house who plan on living in it personally or letting a relative live there.
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