Budget 2024 announced many changes, one of which included changes to the Home Buyers’ Plan (HBP); a program in Canada that allows dentists who are ready to be first-time homebuyers withdraw money from their Registered Retirement Savings Plan (RRSP) to purchase or build a (qualifying) home. The government created this program to help Canadians enter the ever-changing and challenging real estate market and finally achieve homeownership.
Are You Considered a First-Time Homebuyer?
In order to qualify for the Home Buyers’ Plan, dentists and other individuals must be considered first-time homebuyers, meaning they have not owned a home within the past four years. They must also have a written agreement to buy or build a home, and they must intend to occupy the home as their primary residence within one year of purchasing or building it.
Under the Previous HBP Rules
Prior to April 2024, you could withdraw money from your RRSP to use as a down payment for your new home if:
- You were buying or building a qualifying home (single-family home, semi-detached, townhome, condo, mobile home or one that is being constructed in Canada)
- You were a first-time homebuyer and you’d live in this home
- You meet the withdrawal criteria
Withdrawals made after March 2019 increased from $25,000 to $35,000. If you were buying a home with your partner/spouse, you could each take out $35,000 for a total of $70,000 from your RRSPs, tax-free. Two years after you withdrew the money, you would have to start repaying it. You’d have 15 years to repay it.
Under the Current HBP Rules as of April 2024
With Budget 2024 changes, first-time home buyers can withdraw tax-free money from their RRSP for a limit of $60,000. If you are purchasing a home with your partner/spouse, you can each take out $60,000 for a total of $120,000. This also applies to those who are separated/divorced and have not owned a home in the last four years.
The HBP Works in Tandem With the Tax-Free First Home Savings Account
The HBP plan works in tandem with the Tax-Free First Home Savings Account (FHSA), another government-created program which allows Canadians to contribute up to $8,000 per year (and a lifetime limit of $40,000) towards their first downpayment. One of the main benefits of the FHSA is the significant tax savings – the contributions are tax-deductible and are also tax-free, meaning any interest or investment gains earned on the account are not subject to taxes. This can help it grow quickly, and allow you to combine it with the HBP. So, $60,000 from HBP + $40,000 from FHSA = $100,000 tax-free downpayment for your home!
To be eligible for a FHSA, you must be a first-time homebuyer who has not owned a home in the past four years. Funds must be used toward the purchase of a first home within a certain timeframe or there may be penalties for early withdrawal. Overall, its goal is to help individuals achieve their homeownership dreams sooner.
How Repayments Work
As mentioned above, you have up to 15 years to repay money withdrawn from your RRSP or your pooled registered pension plan (PRPP) or specified pension plan (SPP). Under the current rules, you must start repaying it within two years, however, a new temporary relief was introduced this year to defer the start of the 15-year repayment period by an additional three years. This rule applies to dentists and anyone who made a withdrawal between January 1, 2022, to December 31, 2025. For example, if you made a withdrawal in 2023, you can begin repaying it in 2028. Just note that you can make earlier payments if you desire, but your repayment period will remain the same.
Are You Ready to Achieve Homeownership?
Overall, the First-Time Home Buyers Plan is a valuable program that helps Canadian dentists achieve their dream of homeownership, while also promoting savings for retirement. It provides a practical and accessible way for first-time buyers to enter the housing market and build equity in their own homes. Plus, it can work in tandem with the Tax-Free First Home Savings Account, allowing individuals to potentially use $100,000 towards the purchase of their first home.
Understanding all of the rules and processes can be confusing for first-time homebuyers, so it’s best to work with tax professionals such as those at Dental Tax, who can thoroughly explain all of your options and ensure you’re making smart and well-informed decisions.
Adam has an MBA from the Richard Ivey School of Business in London and also holds a Chartered Investment Manager designation.
