Home Buyers’ Plan (HBP): Enhanced Possibilities
The HBP allows first-time home buyers (special rules apply for those with a disability) to withdraw amounts from their RRSP to buy or build a home. Budget 2019 proposed to increase the HBP withdrawal limit to $35,000 from $25,000. As the HBP is available to each individual, a couple could access up to $70,000 to assist in a first-time home purchase. This increase is effective for withdrawals made after March 19, 2019.
Taxpayers are considered first-time home buyers if, in essence, they did not occupy a home that they or their current spouse or common-law partner owned in the last four years. Specifically, they could not have occupied the home in the period beginning on January 1 of the fourth year before the year the funds are withdrawn, and ending 31 days before the funds are withdrawn.
Funds must be repaid into the RRSP over a 15-year period. If no repayment is made for a year, the individual will have an income inclusion equivalent to the required repayment. However, this could still be advantageous as the tax on the withdrawal is at least deferred to later years.
Budget 2019 also proposed an expansion to the rules such that individuals who experience a breakdown of a marriage or common-law relationship may be eligible even if they do not meet the first-time home buyer requirement. This will allow access to the HBP for either a new home or acquiring the former spouse’s interest in the couple’s existing house. However, where an individual’s principal place of residence is a home owned and occupied by a new spouse or common- law partner, the individual will not receive access to the HBP.
Consider whether an RRSP contribution should be made now in order to benefit from the tax deduction, while making equity available for a later home purchase. Funds withdrawn under the plan must be in the RRSP at least 90 days prior to the withdrawal.