Sellers : HBP-RRSP

The HBP

Many buyers are eligible for financial and tax benefits. Chief among these are first-time buyers who use their RRSPs to make a down-payment and individuals who move to be closer to work or school.

In this time of budgetary cutbacks, tax shelters are becoming increasingly rare. Those that remain seem like they're only for the rich. However, the Home Buyer's Plan (HBP) is a tax-shelter that can benefit everyone. Introduced in 1992, the Minister of Finance extended the HBP indefinitely in February, 1994. However, because the conditions may change from one year to the next, you should consult Canada Customs and Revenue Agency "Home Buyer's Plan (HBP)" brochure, which is updated yearly to reflect any modifications.

To benefit from the HBP, you must be a qualified first time home-buyer and must have concluded a written agreement for the purchase of an admissible dwelling: single-family house, semi-detached home, row-house, mobile home, condominium, apartment in a duplex, triplex, quadruplex or in an apartment building.

You do not have to retire to profit from your RRSP
When you file your income taxes you can see the benefits of a Registered Retirement Savings Plan (RRSP). But did you know that you can profit from your RRSP in other ways? You may choose to use all or some of the money in your RSSP to purchase a house, making your home a tax shelter.

You may withdraw up to $20,000
The HBP allows you to withdraw a maximum of $20,000 from your RRSP tax-free and use it as a down-payment on your first home. If you are buying a home with your spouse, you can each withdraw $20,000 from your individual RRSPs.

Talk about a tax shelter that's twice as good!

You have 15 years to pay back the money you take out of your RRSP.
You must pay back the money you took out of your RRSP as part of the HBP within 15 years, at the most. This means you must pay back 1/15th of the total amount every year. Once a year, Revenue Canada will send you an account statement that shows how much you have already paid, how much is left to pay, and the amount you must pay back the following year.

You can benefit from the HBP even if you do not have money in an RRSP. If you are eligible for an RRSP but have not made any contributions (or have not contributed the maximum), you can correct your oversight. The law allows you to play catch-up and deposit unused contributions from previous years into your RRSP.

Take the case of John who was allowed to put $5,000 a year into an RRSP (based on his annual income), but never did. John now wants to take advantage of the HBP to buy a home. No Problem! He can take $20,000 from his savings (equal to $5,000 for each of the previous four years) deposit this amount in an RRSP and benefit from substantial income tax savings. He can then withdraw this $20,000 from his RRSP, use it to purchase a house and put the money back into his RRSP at a rate of $1,333 per year.

If John does not have $20,000 (or less) to invest in an RRSP, he could borrow the amount and still benefit from the HBP. Not only that, his income tax savings would cover most of the interest he will have to pay on the loan.