Tax Tip - Can you benefit from recent changes to the Home Buyers’ Plan?

January 06, 2020

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The first-time Home Buyers’ Plan (HBP) withdrawal limit increased to $35,000 from $25,000 for withdrawals made after March 19, 2019. If you qualify, you and your spouse or common-law partner can withdraw up to $70,000 tax-free from your RRSP towards the purchase of a principal residence. The home must be purchased by October 1 of the year following the year of withdrawal. Amounts withdrawn must be repaid to your RRSPs in 15 equal instalments, starting with the second taxation year following the year of withdrawal (amounts not repaid are taxed as an RRSP withdrawal). For example, you and your spouse withdraw $30,000 each from your RRSPs in January 2020, and purchase a house in February 2020. The annual instalments will be $2,000 for each RRSP ($30,000/15), and will need to be repaid starting with the 2022 tax year.

In addition to the withdrawal limit increase, in 2019 changes were made to allow an individual to re-qualify for the HBP following the breakdown of a marriage or common-law partnership, starting in 2020. In general, however, certain circumstances must be met in order to be eligible:

  • At the time of withdrawal of funds from the RRSP, the individual must have been living separate and apart from their spouse or common-law partner for at least 90 days (in the current year or any time in the previous four years) due to a breakdown in the marriage or common-law partnership;
  • If they are purchasing a home, the individual must sell their previous principal residence no later than the end of the second year after the year of withdrawal of funds from the RRSP;
  • If they are buying an interest or right in a home from their former spouse or common-law partner, they must do so no earlier than 30 days before the withdrawal from the RRSP and no later than September 30 of the year following the withdrawal; and
  • If the individual has a new spouse or common-law partner at the time of the RRSP withdrawal, the new spouse or common-law partner does not own or occupy a home that is the individual’s principal residence.

Your BDO tax advisor would be pleased to provide further details.

This tax tip is a publication of BDO Canada LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this tax tip is current as of January 1, 2020.