Rules for Repaying the RRSP Home Buyers' Plan – Part 3 of 3 (Return of the Money)
We’ll here we are finally for the final chapter of this trilogy, paying back your RRSP Home Buyers’ Plan. Now that you’re all moved and have finally memorized your new postal code it’s time to start thinking about returning the money you borrowed from your RRSP.
Repaying the RRSP Home Buyers’ Plan
When it’s time to begin repaying your HBP loan, the Canada Revenue Agency will send you a Home Buyers’ Plan (HBP) Statement of Account. It’s an annual notice included in your income tax Notice of Assessment that shows the total amount of withdrawals, the amount left to repay and the amount due for that year. Much like an RRSP contribution, you can make repayments over the course of the year or in the first 60 days of the following year. There is a section on your tax form to designate the repayment to the HBP. After an initial grace period of the year in which the withdrawal was made plus one more full calendar year, you have to start paying the money back. You generally have to do this over a period of at most 15 years by annually depositing at least 1/15 of the amount withdrawn into your RRSP. These are the minimum requirements – you can pay more, or pay faster without penalty. You have to repay an amount to your RRSP each year until your HBP balance is zero.
Example RRSP HBP withdrawal $15000 ($1000/y repayment)
Any additional RRSP payments can be designated as HBP (no tax advantage) or as a regular RRSP contribution Tax = (Taxable Income – contributions) * rate.
If you don’t own the home anymore
If you sell your home or declare bankruptcy, you still have to make HBP repayments. Any outstanding repayments have to be reported as income in special cases, such as if you leave the country, the balance of withdrawals made under the HBP must be paid within 60 days of ceasing residency. In the event of death, the outstanding amount must be included in the deceased person’s income for the year. Finally, if your RRSP matures and you have an outstanding HBP repayment balance at the end of the year in which you turn 69, this outstanding amount must be paid before year end or be reported as income on your tax return. If you don’t pay if you don’t make HBP repayments, the amount owing in any given year will be included in your income and subject to tax. For specific questions or details, you should contact the Canada Revenue Agency.
How to cancel the plan
You can cancel your participation if you have met all the applicable HBP conditions except for one of the following; you did not buy or build a qualifying home or you became a non-resident before buying or building a qualifying home.
One thing to be aware of is if you make a withdrawal from your RRSP and meet all applicable HBP conditions, you cannot cancel your participation.
If you repay to your RRSPs the full amount you withdrew under the HBP, you will not be taxed on your withdrawal. Any portion of your withdrawal that is not repaid will have to be included in your income for the year you received the funds.
You can make your cancellation payments to any of your RRSPs or to a newly opened RRSP. If you cancel your participation because a qualifying home was not bought or built, your cancellation payments are due by December 31 of the year after the year you received the funds.
Example Caillou and Sarah withdraw $20,000 from their RRSP for the HBP in March 2011. Sarah finds out she is pregnant with twins and they decide to delay buying a home and cancel the HBP. Their cancellation payments are due by December 31st 2013.
Guide RC4135, Home Buyers’ Plan (HBP)
T1036 Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP
Home Buyers’ Plan Cancellation Form RC4135
I lied in my last post because I did not cover the First Time Homebuyers Tax Credit this time, however I will include it in my next trilogy of posts so stay tuned.
If you would like to learn more about the Home Buyer’s Plan or would like to learn how to pay off your mortgage faster, call me at 613.286.6841 or e-mail me info@AndrewWBradley.ca.
The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice (preferably me) before making any decision in relation to your particular requirements or circumstances.