Enhancements to Canada's Home Buyer's Plan (HBP)

One of the biggest challenges faced by young Canadians today is saving for a down payment and qualifying for an affordable mortgage. In response to this, the Canadian government has announced significant enhancements to the Home Buyers’ Plan (HBP). Starting April 16, 2024, the HBP withdrawal limit will increase from $35,000 to $60,000. The HBP allows first-time homebuyers to withdraw from their Registered Retirement Savings Plan (RRSP) to buy or build a qualifying home. This increase recognizes the larger down payments required in today’s real estate market. Additionally, the government is introducing a 30-year mortgage option for first-time buyers purchasing newly built homes, effective August 1, 2024 .

The Home Buyers’ Plan (HBP) is a government program designed to assist first-time home buyers in Canada. To participate in the HBP, you must be a first-time home buyer or have not owned a home in the past four years. You must also have a Registered Retirement Savings Plan (RRSP). Any withdrawals from the RRSP account must be used as a down payment on a qualifying home or any other direct expense associated with a purchase of a qualifying home. The withdrawal is tax-free, and no taxes are deducted from the amounts withdrawn from the account. The withdrawn amount must be repaid back into your RRSP within a specified timeframe (currently up to 15 years). This repayment ensures that the funds are used for homeownership and not permanently withdrawn from your retirement savings. The home that is being purchased under the plan must be considered a “qualifying home,” which generally includes single-family houses, condos, townhouses, and certain mobile homes.

The grace period for the Home Buyers’ Plan (HBP) withdrawal limit increase has been extended to five years from the current two years. This means that Canadians who withdraw from their HBP between January 1, 2022, and December 31, 2025 , will have five years to focus on their mortgage payments. This extension provides additional flexibility for first-time homebuyers as they transition into homeownership.

Let’s look at an example: Jamal plans to withdraw $60,000 from his RRSP account under the HBP on September 1, 2024. His grace period for repayment will begin in 2029 (five years after the withdrawal). Jamal will need to repay $4,000 annually starting 2029 until the entire amount is repaid. Jamal can repay his HBP amounts by contributing to his RRSP. If Jamal does not make the minimum required repayment to his RRSP, he will have to include it as RRSP income on line 12900 of his income tax and benefit return. The amount included on line 12900 is the minimum required repayment as shown on his HBP Statement of Account.

For further information please contact Taxtron Support at 416-491-0333 or visit www.taxtron.ca