In Quebec, as elsewhere in Canada, the Registered Retirement Savings Plan (RRSP) can be used to purchase a home through the Home Buyers’ Plan (HBP). Here are the key points to know about using the HBP RRSP for purchasing a home.
What is the HBP?
The Home Buyers’ Plan (HBP) is a federal government program that allows buyers to withdraw funds from their RRSP to buy or build a home without paying taxes on the withdrawals, provided certain conditions are met.
To qualify for the HBP, you must:
- Be a Canadian resident.
- Be a first-time homebuyer. However, if neither you nor your spouse has owned a home in the past four years, you may qualify as a first-time homebuyer.
- Plan to use the home as your principal residence within the year following the purchase or construction.
What is the maximum withdrawal amount?
The HBP allows you to withdraw up to $35,000 from your RRSP. If you and your spouse are both eligible, you can each withdraw up to $35,000, for a total of $70,000.
Withdrawal Procedure
- Complete the forms: Use the T1036 form, “Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP.”
- Get approval for the withdrawal: Submit the form to your financial institution to process the withdrawal.
- Meet the withdrawal deadline: Withdrawals must be made in the year of purchase or before October 1 of the following year.
Repayment of Withdrawn RRSP Funds
Funds withdrawn must be repaid into your RRSP over a 15-year period:
- Repayment starts in the second year following the year of withdrawal.
- Each year, you must repay at least 1/15th of the amount withdrawn. If you do not repay, the unpaid amount will be included in your income and taxed.
Advantages of the HBP for RRSP
First, you are not taxed at the time of withdrawal. You can access your RRSP funds tax-free, unlike regular RRSP withdrawals. Additionally, you have 15 years to repay the withdrawn amount, which can ease the initial financial burden.
Limitations and Considerations
Note that using the HBP for RRSP can impact your retirement savings. Withdrawing funds from your RRSP to purchase a home reduces the amount available for your retirement. It is essential to plan accordingly.
Moreover, if you fail to repay the required amount each year, the unpaid amount will be taxed, increasing your taxable income.
Get advice from tax professionals to plan your purchase
The HBP for RRSP is a powerful tool to facilitate the purchase of a first home in Quebec by using your RRSP funds tax-free. However, it is important to understand the conditions, repayment amounts, and potential impacts on your retirement savings before proceeding. For personalized advice, we recommend consulting one of our financial advisors.
