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With the increasing number of properties available for sale, the real estate market in Canada has once again switched to a buyer’s market. In addition, the Bank of Canada has maintained interest rates at all-time low levels making mortgages very attractive for first-time home buyers. Combined with these low-interest rates, first-time home buyers also have the Home Buyers’ Plan (“HBP”) available to them which was introduced in the 1992 Federal Budget.
The Home Buyers’ Plan allows an individual to withdraw up to $25,000 from their Registered Retirement Savings Plan (“RRSP”) to be used towards the purchase of a home in Canada. This withdrawal is completed on a tax-free basis with no immediate tax consequences. The initial contribution to your RRSP allows for a tax deduction that can be applied against the taxpayer’s income (i.e. employment income).
The government has provided certain restrictions that must be adhered to in order to qualify under this program.
The taxpayer’s RRSP contributions must remain in the RRSP plan for a minimum of 90 days prior to being withdrawn. If the taxpayer withdraws prior to the 90 days lapsing, the deduction as noted in the example above would be denied.
The taxpayer is required to repay the full amount withdrawn from the RRSP account within a period of 15 years. This repayment starts in the second year following the year you made your withdrawal. CRA will provide the taxpayer with a Home Buyers’ Plan (HBP) Statement of Account each year on the annual Notice of Assessment which will provide the amount that has been repaid to date and the minimum required payment for the following taxation year.
An example which demonstrates the repayment:
Therefore, the taxpayer would be required to repay $1,667 per year if he/she withdrew the full $25,000 from an RRSP account. In addition, the taxpayer would be required to file a completed Schedule 7 with his/her income tax return to designate the amount re-contributed to their RRSP as an HBP repayment. If the taxpayer does not make the required repayment in the year, the taxpayer is required to include that amount as income on line 129 of their personal tax return.
The First-Time Home Buyers Plan is a great plan that provides the opportunity for individuals to contribute to their RRSPs and withdraw the funds, on a tax-free basis, to use towards to the purchase of a first-time home property. The repayment period of 15 years also provides an extended period for the taxpayer to repay the amount withdrawn.
With interest rates being attractively low, it is generally a good idea for individuals to consider home ownership. The HBP provides an additional benefit that should be utilized.
To learn more about how MNP can assist you in participating in the First-Time Home Buyers Plan, contact your local MNP Tax advisor.
Related Topics:Personal Tax; RRSP; Property
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