Ann Smith
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Email: ansmith@sympatico.ca

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RRSP + HBP = The Purchase of Your First Home

By Ann Smith

So, you want to purchase your first home — but you don’t have the money for a down payment. But wait! That doesn’t mean you can’t make your dream come true. There are options if you have a Registered Retirement Savings Plan (RRSP).

By using Form T1036 with your RRSP issuer, you can apply to Revenue Canada to use the Home Buyers’ Program (HBP) to become a first-time homeowner. Here are a few points to get you started.

1. As a qualifying applicant, you can make “tax-free” withdrawals from your qualifying RRSP’s to a maximum of $20,000 for the year you purchase a qualifying home. (If purchasing with a spouse or other individual, the amount is $20,000 per person.)
2. Your repayments do not begin until the second year after you made the withdrawal. For example, if you took the money out of the RRSP in 2007, then your repayments begin in 2009.
3. Your annual Notice of Assessment (NOA) from Revenue Canada will tell you what your next year’s required repayment amount is. However, you can designate more of your RRSP contributions than is listed on your NOA. This may have two effects:
   a. To shorten the repayment period from the original 15 years and/or
   b. To reduce the annual required repayment amount.
4. The HBP gives you 15 years to pay the RRSP withdrawals back. Thus, the annual repayment amounts are determined by dividing the total withdrawals by 15 (i.e., a $3,000 withdrawal will be repaid at a rate of $200 per year ($3,000/15)).
5. The designations of your RRSP contributions per year are processed easily on Schedule 7, Part E, of your Federal Tax return.
6. If you do not repay the HBP amounts (designate RRSP contributions to the HBP), then the annual repayment amount is included into the current year’s income. This year’s non-repayment does not affect the repayment amount of future years.

For more information contact Revenue Canada for guide #RC4135 Home Buyers’ Plan (HBP). And an added bonus, apart from the HBP, is that as a qualifying first-time homebuyer you will receive a $5,000 tax credit to help with closing costs.

Work with Revenue Canada and your RRSP issuer to become a homeowner sooner than you thought — if the timing works in your favour - maybe in time for Christmas.

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