Coming up with a downpayment for a first-time home buyer can be a significant challenge. The Federal Government’s Canadian Home Buyers Plan lets you borrow a maximum of $25,000 from your RRSPs to assist with your down payment.
To be eligible for this plan you must not have owned a home within the last four years. If one spouse has owned a home in that four year period, and the other one has not, then one of you can claim to be a first-time home buyer. Those who are eligible for the plan can withdraw $25,000 from their RRSP, for a total of $50,000 if both spouses qualify, that can be used towards a down payment.
Quinn Bateson-Hotte, Senior Accountant at Millards Chartered Professional Accountants in Brantford says that the program has advantages but following the rules is critical.
“When borrowing money under the HBP, it is important to follow the repayment rules. If you don’t, the withdrawals are added back to your income.”
You’ll need to start your repayments the second year after the year you withdrew the money from your RRSP.
“This means if you used the Canadian Home Buyers Plan to help you buy or build a home in 2016, you’ll need to start paying back what you borrowed in 2018.”
You have up to 15 years to repay the loan, and you’re required to pay back at least 1/15 of the total amount you’ve withdrawn per year. If you miss the payment, you’ll need to declare that year’s repayment amount in your annual income.
Bateson-Hotte says that the repayment process is easy, providing you don’t miss it.
“A repayment is made by making a regular contribution to your RRSP and designating it as a repayment on your tax return.”
The CRA requires that you repay the amount you withdrew under the HBP within 15 years, but it doesn’t mean you can only pay the minimum each year.
You could choose to repay an amount that’s larger than the minimum amount shown on your most current notice of assessment.
“Making a larger repayment won’t decrease the number of years of repayments but it will decrease the amount that you’ll be required to repay for each remaining year until the balance has been paid in full.”
“When you file your tax return, you’ll have to complete Schedule 7 and designate that the RRSP contribution is applied as an HBP repayment. The repayment is not a deductible contribution.”
It’s important to note that someone who qualifies for the HBP will likely qualify to claim the Home Buyers’ Amount on their tax return as well. The Home Buyer’s Amount is a $5,000 maximum tax credit for first-time home buyers who purchased a qualifying home in 2017.
So how do you know if it’s time to start paying back?
The CRA sends you the Home Buyers’ Plan Statement of Account every tax year along with your notice of assessment. This statement includes your withdrawals under the Canadian Home Buyers Plan, the amount you have repaid, your outstanding balance and how much you need to contribute next year to repay your RRSPs.
Watch the video below for an overview of the Federal Government’s Canadian Home Buyers Plan.
Do you have any questions about the HBP? Contact Millards Chartered Professional Accountants today and find out how a qualified accounting team can help you navigate the challenges of personal finance.