Definition
The Home Buyers’ Plan (HBP) is a program in Canada that allows first-time home buyers to withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP) to put toward a down payment on a home, without any tax penalties. The amount withdrawn must be repaid within 15 years, or it will be added to the individual’s income for tax purposes. It’s an incentive designed to facilitate home ownership for first-time buyers.
Phonetic
Home Buyers’ Plan: /hoʊm ‘baɪərz plæn/ (HBP: /ˌeɪtʃbiːˈpiː/)
Key Takeaways
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- The Home Buyers’ Plan (HBP) is a program that allows prospective homeowners in Canada to withdraw up to $35,000 from their registered retirement savings plan (RRSP) to buy or build a qualifying home for themselves or a related person with a disability.
- Contributions that you withdraw under the HBP must be repaid to the RRSP over a 15-year period, starting the second year following the year of withdrawal. If the required repayment is not made, the amount is added to your income for that year and is subjected to tax.
- The eligibility conditions for the HBP include having a written agreement to buy or build a qualifying home, being a Canadian resident, and you must intend to occupy the qualifying home as your principal place of residence within one year after buying or building it. Also, neither you nor your spouse or common-law partner should own the qualifying home more than 30 days before the withdrawal.
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Importance
The Home Buyers’ Plan (HBP) is a vital element in business/finance, particularly for first-time home buyers. This scheme, applicable in countries like Canada, permits individuals to withdraw a certain amount from their Registered Retirement Savings Plan (RRSP) to buy or build a new home, without attracting any penalties or requiring immediate taxation. This significantly reduces the financial burden and facilitates the homeownership process. Therefore, it plays a crucial role in promoting homeownership, providing financial flexibility, aiding in capital accumulation, and fostering economic growth. At the same time, it also encourages citizens to save for retirement. Thus, it’s a strategic personal finance tool.
Explanation
The Home Buyers’ Plan (HBP) is a program in Canada that serves the purpose of assisting first-time home buyers to purchase or build a home. This program essentially permits prospective homeowners to borrow from their Registered Retirement Savings Plan (RRSP), which is intended for retirement savings, to finance their home purchase. The crucial aspect of HBP is it allows people to use this retirement savings money without any tax penalties, which is typically incurred when an individual withdraws from their RRSP before retirement. The HBP is used to foster home ownership, particularly among those who might struggle with gathering sufficient funds for a down payment on a house. The key feature of this program makes it more financially feasible for prospective homebuyers, lending them the ability to leverage a portion of their saved retirement funds towards their property investments. The withdrawn amount must be repaid into the RRSP accounts over a period of time. By doing so, it serves both as an accessible source of financing and a commitment to replenish retirement savings, ensuring that the financial goals of individuals aren’t severely disrupted.
Examples
1. Example 1: John and Mary, a newlywed couple living in Toronto, plan to purchase their first house. They do not have enough savings for the down payment. They decide to take advantage of the Home Buyers’ Plan (HBP) offered by the Canadian government. Each of them withdraws $35,000 from their respective Registered Retirement Savings Plans (RRSPs) tax-free to use as a down payment. This allows them to avail a significant amount without any immediate tax implications, and they have up to 15 years to repay these amounts to their RRSPs.2. Example 2: Susan, a single mother living in Vancouver, has recently gone through a divorce. She had lived in a house owned by her ex-spouse prior to the separation. It’s been a couple of years and she is now eligible to use the HBP as she meets the 4-year period condition which considers her a first-time homebuyer again. She utilizes her RRSP to pull out $25,000 under the HBP to help purchase a new house for herself and her children.3. Example 3: Chris and Amy, a couple living in Montreal, have owned a home before, but due to job relocation, they had to sell their house and move into a rental house. After renting for six years, they are considered first-time homebuyers under the HBP rules, as they have not lived in a house that they owned for four consecutive years. They each withdraw $30,000 from their RRSPs under the HBP, using it for a down payment on a new house in the city.
Frequently Asked Questions(FAQ)
What is the Home Buyers’ Plan (HBP)?
The Home Buyers’ Plan (HBP) is a Canadian government program that allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to purchase or build a home, without having to pay tax on the withdrawal.
Who is eligible for the Home Buyers’ Plan (HBP)?
It is available to first-time homebuyers, individuals with a disability, and those helping a relative with a disability to buy or build a qualifying home.
How much can I withdraw from my RRSP under the Home Buyers’ Plan?
You can withdraw up to $35,000 from your RRSP to buy your first home under the HBP.
How long do I have to repay the money I withdraw from my RRSP under the HBP?
You have up to 15 years to repay the amount withdrawn from your RRSP.
What happens if I can’t repay the Home Buyers’ Plan within 15 years?
If you can’t repay the full amount within 15 years, the remaining balance will be considered taxable income for that year.
Can both spouses use the HBP to buy the same home?
Yes, each spouse can withdraw from their RRSP under the HBP, for a combined total of up to $70,000.
Do I have to use the money I withdraw under the HBP to directly buy or build a home?
Any funds withdrawn under the HBP must be used to build or buy a qualifying home before October 1 of the calendar year following the year of withdrawal.
What qualifies as a ‘first-time’ homebuyer under the HBP?
Under the HBP, you are considered a first-time homebuyer if you or your spouse or common-law partner haven’t lived in a home owned by either of you in the four-year period before the withdrawal.
When must I make the withdrawal from my RRSP for the Home Buyers’ Plan?
You must make the withdrawal from your RRSP within 30 days of taking title of the home.
Is there any cost or fee for withdrawing from my RRSP for the HBP?
There is no direct cost or fee for withdrawing from your RRSP under the HBP. However, you may want to consider possible tax implications and lost investment growth.
Related Finance Terms
- Registered Retirement Savings Plan (RRSP)
- First-time Home Buyer
- Canada Revenue Agency (CRA)
- HBP Repayment
- Financial Eligibility
