As long as all HBP conditions are met, the Home Buyers' Plan allows a qualified participant to withdraw RRSP funds tax-free up to $20,000, when buying or building a home (or helping a related disabled person do so) in Canada.

A former participant may use the Plan again in any year in which his/her HBP balance is zero on January 1 of the year or within the first 60 days of that year.

After an agreement has been entered to buy or build a home, one or more qualified participants can withdraw eligible RRSP funds tax-free before the closing date and up to 30 days thereafter. Example: Kate has not owned her own home during the past four years, so she is considered a first-time buyer. On April 15, 2008 she enters into an agreement to buy a home, with a closing date (also called acquisition, possession, or completion date) of June 1, 2008. Upon entering the agreement, she can withdraw RRSP funds tax-free up to $20,000 in total, any time from April 15 until July 1 (July 1 is 30 days after the closing date), and she can use the funds for any purpose. Kate intends to move into her home no later than one year after the closing date.

Eligible funds are those that are not locked in your employer's group RRSP or in a fixed-term GIC, etc. If you wish to withdraw such funds for the HBP, ask your RRSP issuer if they can be released.

GENERAL GUIDELINES:

You can participate in the HBP if:

1) You reside in Canada, and

2) you have never owned your own home, or since the past four years you have not owned your own home, and, if applicable, your spouse (the person to whom you are legally married) or commonlaw partner has not owned a home you both occupied since that time; this first-time-buyer restriction does not apply if you or a related disabled person needs a more accessible or better suited home; and

3) you have entered into a written agreement (your offer has been accepted on a resale home or you have signed a contract on a brand-new home) to buy or build a home for yourself, or a better suited home for a related disabled person; or you are helping a related disabled person who has entered into an agreement to buy or build a better suited home; and

4) you close the transaction (closing date) before October 1 of the following year (if building a home, it must be habitable before October 1), some extensions apply; if you withdraw funds to help a related disabled person to buy or build a more suitable home, the disabled relative must meet this condition; and

5) you intend to occupy the home as your principal place of residence no later than one year after the closing date, some extensions apply; if you are withdrawing RRSP funds to assist a related disabled person to acquire a more accessible home, the disabled relative must meet this condition.

Disabled person:

For purposes of the HBP, a disabled person includes you or a person related to you by blood, marriage, or adoption; and to qualify as a disabled person, the individual must be entitled to the Disability Amount on Line 316 of the tax return for the year of the HBP withdrawal, and must have a CRA-approved Form T2201 provided by the disabled person's doctor, optometrist, audiologist, psychologist, or occupational therapist. If you qualify, even if you currently own a home, you may withdraw RRSP funds tax-free to acquire a better suited home.

If your relative qualifies, even if your disabled relative currently owns a home, you may withdraw RRSP funds to acquire a more suitable home for the disabled person, or to help him or her purchase a better suited home. A related disabled person does not have to reside with you in the same home.

Tax-free withdrawals:

Complete the current Form T1036 for each withdrawal.  You can withdraw a single amount or make a series of withdrawals throughout the same year. If you receive a further amount (or amounts) no later than January 31 of the following year, the funds received in January are considered to have been received in the year the first withdrawal was made. The total of all your RRSP withdrawals cannot be more than $20,000.

Note: If you withdraw eligible RRSP funds that you contributed less than 90 days ago, your issuer will give you the funds tax-free on completion of Form T1036, but the amount of the new contribution that is withdrawn will not be allowed as a tax deduction in any year. So, not to lose out on a future Line 208 deduction for funds not yet claimed on Line 208 of your tax return, remove only those funds that have been in an RRSP for at least 90 days.   

You can make tax-free withdrawals any time up to 30 days after you close the transaction on a home for yourself or for a qualified disabled relative, or after the disabled person you are assisting has acquired a home.

If you are buying the same home together with your spouse or commonlaw partner, or other individuals, each qualified buyer is entitled to withdraw up to $20,000 tax-free.

Spouse refers to a legally married person. Commonlaw partner refers to a person of the opposite or the same sex who is not your spouse when you live and have a relationship with that person. A commonlaw partner has the same income tax rights and obligations as a spouse, and is a person to whom at least one of the following conditions applies: he or she is the natural or adoptive parent (legal or in fact) of your child; or he or she has been living and having a relationship with you for at least 12 continuous months. The foregoing includes any period that you were separated for less than 90 days because of a breakdown in the relationship.  

You are actually borrowing from your RRSP:

You will have to repay the funds to your RRSP in 15 years, or you may pay back faster if you prefer. CRA (Canada Revenue Agency) will issue an annual reminder by including an HBP Statement of Account each year on your Notice of Assessment, showing the amount you have to repay to your RRSP the following year. If you do not make the specified payment in any year, the required minimum repayment will be added to your other income and you will be taxed on it in that tax year.

You have to file a tax return and attach a completed Schedule 7 to designate your RRSP contribution as a repayment under the HBP. Even if you have no income to report in the year, as long as you have an HBP balance, you have to file a return.

If the transaction falls through:

If the transaction does not go through, you may cancel the Plan and return the funds to your RRSP, or another home may be acquired in its place before October 1 of the year following the year of withdrawal. Extensions may apply in some cases.  

Earn 40% on your money!

If you do not have an RRSP, but you are saving to buy a home and you qualify for the HBP, it is in your interest to transfer your savings (up to your RRSP deduction limit but not exceeding $20,000 totally) into an RRSP for at least 90 days and to withdraw the funds (maximum $20,000) after you've entered into an agreement to purchase a specific home. Say you make $45,000 a year, and you have saved up $10,000. Leave the money where it is and you have $10,000 plus interest. Leave it in an RRSP and you will get a 40% tax deduction at tax time. See the difference? You will have $14,000 plus interest.

Income Tax Note: Not exceeding your RRSP deduction limit (contribution room), an RRSP contribution is deductible either 1) in the year it is made, or 2) in the immediately preceding tax year, if it is made in the 60 days immediately following the preceding tax year, or 3) in any subsequent year. For example, a contribution made in February 2008 can be deducted in the 2007 or 2008 tax year, or can be split in any amount between both years, or can even be carried forward to a future year, at the taxpayer's discretion.

Caution: You may want to save some funds outside the RRSP for a deposit.

How much can you contribute?

Your latest Notice of Assessment shows your contribution deduction limit (also called contribution room), or call your nearest Tax Services Office and they will give you your RRSP deduction limit. That is the most you are currently allowed to invest in an RRSP that is deductible. 

If you qualify for the HBP and you do not have an RRSP and are planning to invest in an RRSP for this purpose, do not tie your money up in a longterm investment if you intend to withdraw the funds soon. However, arrange your closing date so that you can leave the funds in the RRSP for at least 90 days before withdrawal, otherwise you will not be allowed a deduction at tax time for these withdrawn funds. Note: After you have entered into a purchase agreement, you can withdraw the funds tax-free anytime before the closing date and up to 30 days thereafter, under the HBP. 

If you want to know more

Call the Forms Department of your nearest Tax Services Office for their current Home Buyers' Plan Guide and Application Form T1036, or access www.cra.gc.ca/forms.