Debt Management Series: Home Buyers Plan

Do you have clients looking to buy their first home? Ensure they’re familiar with the ins and outs of the Home Buyers Plan to help them fund their purchase.

Those who qualify for the Home Buyers Plan (HBP) get some very special options in Canada. HBP allows a borrower to withdraw up to $25,000 tax-free from an RRSP. The HBP defines a “first-time homebuyer” as follows:

You or your spouse or common-law partner must NOT have owned a home that was occupied as your principal place of residence from January 1 of the fourth year before, to 31 days after, the year of withdrawal from the plan.

The following are exceptions to the first-time buyer rule – these individuals qualify for the HBP:

• Persons with a disability who require a home to better suit their needs – make sure you mention this to your boomer clients who may have suffered a health setback

• An individual can help a person with a disability with the purchase of a property if they require a home to better suit their needs. To qualify, this person must be related by blood, marriage, common-law partnership or adoption

Replenishment Rules

The money withdrawn from the RRSP must be reinvested in an RRSP over the next 25 years and claimed on the individual’s personal return each year as a repayment and not as a regular RRSP contribution. If the minimum amount specified is not contributed to an RRSP during the previous year, that amount must be added to the individual’s tax return as income and will be taxed. Therefore, it is important to make sure that the minimum amount is contributed every year until the amount withdrawn is completely replenished.

This is the fourth article in our debt management series by Knowledge Bureau faculty member Marcia Elaschuk, DFA-Bookkeeping Services Specialist^TM. Marcia hosted last fall’s CE Summit workshop session on Managing Debt Sources.

Additional educational resources: Debt and Cash Flow Management Course, Elements of Real Wealth Management

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