What Is Canada’s Home Buyers’ Plan?

Canada’s RRSP Home Buyer’s Plan is one of the most popular options available to Canadians to help make buying a new home more affordable. The program was created in 1992 as a way to use pre-existing savings, in the form of an RRSP, to purchase a home.

Individuals who take advantage of this program can borrow up to $35,000 from their RRSP to put towards the purchase of their home without having to pay any taxes. While the amount does need to be paid back in full within 15 years, the boost that this provides makes the possibility of owning a home more achievable for many Canadians, especially as the cost of buying a home continues to rise.

While the Home Buyers’ Plan is a handy tool, there are specific conditions in place as to who qualifies to benefit from this program. To be considered eligible for Canada’s RRSP Home Buyers’ Plan you must meet the following requirements:

• You must be considered a first-time home buyer or you can participate in the program on behalf of a specified disabled person.
• You must have a written agreement to buy or build a qualifying home (either for yourself or on behalf of a specific disabled person).
• You must be a resident of Canada for the duration of your use of this plan.
• You, or the specified disabled person for whom you are helping buy/build a qualifying home, must intend to use the home as a primary residence for a minimum of one year.

The Home Buyer’s Plan allows you to withdraw funds from your RRSP to use toward a downpayment for your first home. So, before considering how the Home Buyers’ Plan works, it’s important to understand how an RRSP works.

How an RRSP Works

An Registered Retirement Savings Plan (or RRSP) is a fund designed to help you save for retirement. Each year, the contributions you make to your RRSP are not taxed until you withdraw them upon retirement, reducing the income tax you pay each year and when you finally do have to pay tax on your RRSP savings at withdrawal, the assumption is you won’t be generating an income, so will pay less tax on the funds because you’re in a lower tax bracket.

For instance, if you made $50,000 and contributed $10,000, your taxes would be calculated as if you made $40,000. That means you’d either owe less money in taxes or get a larger tax refund because your RRSP contributions are not treated as income, only your withdrawals are.

There is a cap on how much you can contribute to your RRSP. The limit is 18% of the earned income you reported on your tax return in the previous year, up to a maximum of $30,780 for 2023 specifically.

Essentially, RRSPs are designed so that you don’t pay taxes on the money you contribute to them until you’re retired. Then, the RRSP is converted into a Registered Retirement Income Fund (RRIF). From that point, you withdraw money from your RRIF as income to fund your living expenses in retirement. The money you withdraw is then taxed as income each year.
However, there is a way to withdraw from your RRSP prior to retirement without penalty or having to pay back your withdrawals and that’s through the Home Buyers’ Plan.

How the Home Buyers’ Plan Works

If you have made certain that you qualify for the Home Buyer’s Plan then you can follow these steps to withdraw the funds.

1. Ensure that the amount of money that you want to withdraw is in your RRSP account for a minimum of 90 days before your withdrawal date.
2. Fill out the T1036 Home Buyers’ Plan (HBO) Request to Withdraw Funds from an RRSP form as provided by the Canadian Revenue Agency. You will have to fill out a separate form for every withdrawal you make. Remember as an individual you can only withdraw a maximum of $35,000 under this plan. Any amount over $35,000 will be reported as income and your RRSP issuer will have to pay tax at the time of withdrawal.
3. Once you have filled out your part of the form (Area 1), give the form to your RRSP issuer who will fill out Area 2.
4. After 90 days, you can withdraw the money as needed. You are allowed to make multiple withdrawals under the Home Buyers’ Plan, however, withdrawals must be made within the same calendar year as your first withdrawal and then only in January of the following calendar year.
5. Pay back the borrowed amount as directed within 15 years.

As mentioned above, you can apply for the Home Buyers’ Plan by filling out a specific form provided by the Canadian Revenue Agency. The form you need is the T1036 Home Buyers’ Plan (HBO) Request to Withdraw Funds from an RRSP form which can be found online here.

The form will outline the criteria required to qualify. Assuming you fit the criteria, you can fill out Area 1. Area 2 will need to be filled out by your RRSP issuer. Upon submitting the form you can then wait for approval. The CRA may contact you with further questions about your application.

Individuals who use the Home Buyers’ Plan have 15 years to repay the amount borrowed back into their RRSP. The repayment period starts the second year after you make the first withdrawal. So, if you made a withdrawal in 2023, you will start to pay it back in 2025. You repay the amount as contributions to your RRSP and have to designate some (or all) as repayment by filling out a specific form found here. Include the repayment amount on line 24600 and attach the form to your income tax return.

Should you need to cancel the Home Buyers’ Plan, you will need to fill out the RC471 Home Buyers’ Plan HBO Cancellation and send it to the CRA. You will also need to include a receipt or repayment to your RRSP and a letter explaining why you cancelled it. Generally, you are not allowed to cancel but there are exceptions including becoming a non-resident of Canada and not building/buying within the allotted time.

Both of these types of accounts can help you when it comes to buying your first home. However, the big difference is that your RRSP will need to be paid back and your FHSA does not need to be. That being said, there is also a limit on the FHSA; you can save up to $8,000 per year up to a lifetime maximum of $40,000. You can also only use a FHSA for a home—any other purchase made with this account will be taxed.

Yes, Canadians can use the Home Buyers’ Plan in conjunction with the First Home Savings Account to help buy a home.

Other programs that may assist first-time home buyers include:

• The Home Buyer’s Amount (tax credit up to $1,500 to help cover closing costs and expenses)
• GST/HST Housing rebates
• The First Time Home Buyer’s Incentive (discontinued as of March 31, 2024. Details here.)
• The First Home Savings Account (FHSA)

The Home Buyers’ Plan can be an incredibly handy tool to help qualifying first-time home buyers purchase their homes. However, keep in mind that the amount borrowed does need to be paid back on schedule to avoid any tax repercussions.