Home Buyers’ Plan (HBP) – how to maximize this plan

How does HBP work for YOUR money?

Before we begin this topic, we will briefly discuss how HBP works. Then we will talk about how to maximize this tax-saving strategy toward the end of this article.

Home Buyers’ Plan (HBP) allows first-time homebuyers to withdraw RRSP to purchase or build a home without having to pay tax on the withdrawal.

RRSP Withdrawal Limit for HBP

  • Individual: $25,000
  • Couple: $50,000

The HBP withdrawal limit has increased to $25,000 from $20,000. This applies to withdrawal made after January 27, 2009. It will allow a couple to withdraw up to $50,000 from their RRSP funds toward the purchase of their first home.

This is the first increase in the withdrawal limit since the HBP was introduced in 1992.

Amounts withdrawn are repayable in installments over a period not exceeding 15 years, starting the second year following the year the withdrawal was made.

Eligibility

First-time homebuyers are eligible, provided that the home to be purchased or built is the principal place of residence . An individual is generally considered a first-time homebuyer if the individual did NOT owned another home in the year the HBP withdrawal is made, or in any of the four preceding calendar years. In other words, if you bought a home 5 years ago, you will still be a first-time homebuyer provided the new home will be your principal residence.

Special HBP Tactics

If you withdraw your RRSP toward your first home under the HBP this year, you can utilize HBP again after another 4 years! That’s a income tax saving on the withdrawal amount $25,000 (ie, a tax saving of $3750 at the lowest income tax bracket 15%)!!! What you have to do is…declare your new home as the principal residence and your previous home as rental property. Sweet. 😀 Oh yeah, repeat this tactic every 5th year.



Reference: Canada Revenue Agency

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