Using The Home Buyers’ Plan To Its Best Advantage

With housing prices on the rise across Canada and the appearance of increased interest rates on the horizon, there is no better time to consider purchasing a home and lock in those low rates. The Home Buyers' Plan and First Time Home Buyers' Tax Credit program may help fulfill those dreams.

 

As most of us are aware, the 2009 Federal budget increased the maximum amount that can be removed from a taxpayer's RRSP under the Home Buyers' Plan to $25,000 for withdrawals after January 27, 2009. An application for withdrawal of RRSP amounts is made on Form T1036 Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP, click here to access the form.

 

In the same budget a First Time Home Buyers' Tax Credit was introduced.  This credit is a non-refundable tax credit based on $5,000 for first time buyers who purchase a home after January 27, 2009 (closing date must be after that date). The credit is claimable in the year the home is acquired.  The credit translates to a $750 tax credit ($5,000 x 15%).

 

The Home Buyers' Plan allows first-time home buyers (or those who have not owned a home in the current year or preceding four years) to withdraw (under S. 146.01), on a tax-free basis, up to $25,000 (after January 27, 2009) of funds saved within their Registered Retirement Savings Plan (RRSP) for the purpose of buying or building a home. No tax will be withheld on such withdrawals. The withdrawals may be a single amount or the taxpayer may make a series of withdrawals throughout the year as long as the total does not exceed $25,000. Tax-free withdrawals from an RRSP may also be made for the purpose of making home renovations or purchasing a compatible home to meet the needs of a disabled person.

Excerpted from EverGreen Explanatory Notes. For more information on tax planning provisions and compliance requirements, subscribe to The Knowledge Bureau's online tax reference for taxpayers, financial advisors and their clients: EverGreen Explanatory Notes.