The Home Buyers’ Plan (HBP) is a program that enables you to withdraw funds from your Registered Retirement Savings Plans (RRSPs) to purchase or build a qualifying home. The home can be either for yourself or a specified disabled person. The current maximum withdrawal limit under the HBP is $35,000 per individual.

The HBP allows individuals to contribute to an RRSP and receive the related tax deduction for those contributions, thereby reducing their taxable income and saving on taxes. However, it also allows you to withdraw some of those funds from your RRSPs tax-free to go towards a down payment on your first home. This can significantly help with the financial requirements of buying a home, by letting you leverage your retirement savings for your immediate housing needs without incurring tax penalties on the withdrawal.

Budget 2024 Proposed Increase to Withdrawal Limits

Budget 2024 proposed an increase to the Home Buyers’ Plan withdrawal limit, to $60,000. This significant increase means that first-time home buyers will now be able to use the tax benefits associated with RRSP contributions to save up to an additional $25,000 for their down payment. This change acknowledges the reality of current real estate markets; both the size of down payments and the amount of time required to save for them have grown substantially in recent years.

The increased limit boosts your financial flexibility, enabling you to accumulate more savings within your RRSPs, benefit from tax deductions, and ultimately apply a larger sum towards your home purchase without incurring tax penalties on the withdrawal. The new withdrawal limit would apply to withdrawals made after April 16, 2024.

What is a Qualifying Home

A qualifying home under the HBP is a housing unit located in Canada. This includes both existing homes and those under construction.

Qualifying homes include:

  • Single-family homes
  • Semi-detached homes
  • Townhouses
  • Mobile homes
  • Apartments in multi-unit buildings, including duplexes, triplexes, fourplexes, and condo units
  • Shares in cooperatives if you are entitled to possession

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Who Qualifies As A First Time Home Buyer

To be considered a first-time home buyer under the HBP, you must not have lived in a qualifying home as your principal residence that you or your spouse or common-law partner owned or co-owned at any time in the current calendar year, except for the 30 days immediately before the withdrawal. A first-time home buyer also includes those who are separated or divorced and have not owned a home in the last four calendar years.

Additionally, you must have a written agreement to buy or build a qualifying home either for yourself or for a specified disabled person. You need to be a resident of Canada from the time of your first eligible withdrawal from your RRSPs under the HBP until the purchase or construction of the qualifying home is completed. Moreover, you must intend to occupy the qualifying home as your principal residence within one year of buying or building it. If the qualifying home is intended for a specified disabled person, they must also plan to occupy it as their principal residence within one year of its purchase or construction.

Compounding the Benefits With a First Home Savings Account

The Home Buyers’ Plan works together with the government’s tax-free First Home Savings Account (FHSA). This means you can withdraw amounts from your RRSP under the Home Buyers’ Plan and make a qualifying withdrawal from your First Home Savings Account, if you have one, for the same qualifying home. You need to meet all conditions at the time of each withdrawal for each program.

The FHSA allows Canadians to contribute up to $8,000 per year, with a lifetime limit of $40,000, specifically towards their first home down payment. This combination offers a significant financial advantage. 

By leveraging both the HBP and the FHSA, you can access up to $60,000 from the HBP and $40,000 from the FHSA, totalling $100,000 tax-free for your down payment. If you need additional funds for your home, you could also consider using your Tax-Free Savings Account to further supplement your down payment.

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HBP Repayments and Proposed Changes Under Budget 2024

You have a maximum of 15 years to repay the amounts withdrawn from your Registered Retirement Savings Plan (RRSP) under the Home Buyers’ Plan (HBP). Currently, the repayment period begins in the second year after the year in which you made your first withdrawal under the HBP.

Budget 2024 has proposed an additional, temporary repayment relief, to further make it easier to buy a first home. If you make your first withdrawal between January 1, 2022, and December 31, 2025, you will be able to defer the start of your 15-year repayment period by an additional three years. As a result, the repayment period would begin in the fifth year following the year of the first withdrawal.

Many pharmacists and pharmacy owners find themselves paying significant amounts of taxes; the experts at Pharma Tax specialize in helping people like you save more of their hard-earned money. We can help you maximize your returns for both your personal and business with effective, tailored strategies, too.

Ricardo Ardiles
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