Ontario First-Time Homebuyer Series Part 2: Homebuyers’ Plan

By of Merovitz Potechin LLP on Monday January 27, 2020.

We at Merovitz Potechin understand that buying your first home is a major personal and financial milestone that requires careful consideration of all available options to facilitate the purchase process. To better understand what to expect along the way, this four-part series will summarize home-buying basics and explore programs and initiatives to make your dream home come to life.

In Part 1, we explained the Homebuyer’s Tax Credit. Today, we discuss Canada Revenue Agency’s Homebuyer’s Plan. 

Homebuyers’ Plan

If you’re a first-time homebuyer or builder with a registered retirement savings plan (RRSP), you may be able to withdraw those funds through the government-run Homebuyers’ Plan (HBP). This program allows for tax-free withdrawals totaling $35,000 from any and all RRSPs you own, to be paid back within a 15-year period. The specific requirements for program eligibility, RRSP withdrawals, and eventual repayment of funds are discussed in detail below.

Program Eligibility

The following conditions must be met to be eligible for the HBP:

• First-Time Homebuyer: In the four years prior to your home purchase, you or your spouse or common-law partner cannot have resided in a home that either of you owned. Note that this condition is waived if you are a person with a disability or are helping a related person with a disability buy or build a home, and meet all other conditions.
• Written Agreement: You have a written agreement to buy or build a housing unit located in Canada which you will ultimately own. Such units include existing homes and those being constructed, but excludes any housing that provides only a right to tenancy in the unit.
• Canadian Residency: You must be a resident of Canada when the funds are withdrawn from the RRSP(s), and up to the time the qualifying home is bought or built.
• Occupancy Intentions: In the one-year period after the house is bought or built, you must intend to occupy it as your principal residence. If you are helping a person with a disability, you must intend that that person occupies the home as their principal residence within that time frame. 
• Previous Participation in the HBP: If you have previously participated in the HBP, you may be able to do so again if: the necessary four-year period has passed to again qualify as a first-time homebuyer, the repayable HBP balance on January 1^st of the year of your second withdrawal is zero, and you meet all other eligibility requirements.

RRSP Withdrawal Conditions

Under the HBP, you can withdraw a maximum of $35,000 in either a single or series of withdrawals from your RRSP. This amount may be withdrawn from multiple RRSPs, so long as you are the owner of each RRSP. If you are purchasing the home with your spouse or common-law partner and are both otherwise eligible for the HBP, each of you can withdraw up to $25,000 from your separate RRSPs for a total of $50,000.

Note that your RRSP contribution composing the amount to be withdrawn must have been in the RRSP for at least 90 days. Otherwise, they may not be tax-deductible. Also, the home must be bought or built before October 1^st of the year after the year of the withdrawal.

Note also that the RRSP withdrawal cannot be made if the home has been owned for more than 30 days by you, your spouse or common-law partner, or if applicable, the related person with a disability that you are helping.

Repayment of Withdrawn Funds

The HBP is structured as a loan, and must be repaid in full within 15 years of the withdrawal from your RRSP. The first payment will be due two years after your withdrawal (or the first withdrawal of several, if applicable), and can be paid by making a contribution to your RRSP either in that year or in the first 60 days of the following year. You will be sent an annual Notice of Assessment from Canada Revenue Agency to summarize the amount you have repaid, the outstanding balance, and the required amount for your next payment.

If you are a first time homebuyer and have any questions regarding the financial programs available to you including the HBP, contact real estate lawyer Frank Bourgault at Merovitz Potechin LLP.