Take advantage of the Home Buyers’ Plan to access your RRSP
You asked about using the Home Buyers’ Plan (HBP), which allows first-time home buyers to withdraw up to $35,000 from their registered retirement savings plan (RRSP) to be used towards the purchase or construction of a home that you intend to occupy as your principal place of residence.
If, in the past four years, neither you nor your common-law partner occupied a home that you or your common-law partner owned, you can both qualify for HBP (not to be confused with the first-time home buyer’s incentive program). That means you can access up to $70,000 combined. Your father’s part ownership would not limit your participation in the HBP.
You can make a single withdrawal or multiple withdrawals from your RRSPs, but the key is they must all take place in the same calendar year. You can also withdraw from multiple RRSPs if you have more than one, as long as the total withdrawals do not exceed $35,000 per person. And you must move into the home within a year of buying or building it.
You can even contribute to your RRSP as little as 90 days before the withdrawal and still claim a deduction for the contribution on your tax return. HBP withdrawals are tax-free, and repayments begin the second year after the year of withdrawal. So, if you take your HBP withdrawal in 2022, you must begin making repayments no later than the 2024 tax year.
Keep in mind contributions made during the first 60 days of the calendar year can be claimed on your previous year’s tax return. So, for a 2022 withdrawal, you have until March 1, 2025 to make a repayment. The minimum repayment is one-fifteenth of the cumulative HBP withdrawals. So, if you took $15,000, the minimum repayment would be $1,000 per year for 15 years. A maximum $35,000 withdrawal would have a required repayment of $2,333.33.
If you repay less than the minimum in a given year, the difference is added to your tax return as income. Keep in mind you lose the ability to recontribute this amount to your RRSP forever.
As a first-time home buyer, if you contribute more than the minimum to your RRSP in a given year, you can treat it as an additional repayment of your HBP balance. It would reduce your required repayments in subsequent years.
So, if you repaid $5,000 of a $15,000 balance in the first repayment year, your repayments in the next 14 years would be $10,000 divided by 14, or $714.28. It is usually better to treat any extra contributions as non-HBP repayments, or just regular RRSP contributions, and to claim them as deductions to generate tax refunds. This is because HBP repayments do not generate tax deductions—they just help you avoid the income inclusion that would apply if you do not contribute the minimum.