Guest Post By: Penelope Graham, Zoocasa
If you purchased your first home recently, or are considering getting into the housing market, chances are you are familiar with the Home Buyer’s Plan, a popular federal program that allows home buyers to tap into funds set aside in the Registered Retirement Savings Plan (RRSP) to go toward their home purchase without any tax implications.
The way the HBP works is fairly straightforward. If you’re a first-time buyer (meaning you have not owned property over the last four years), and have a healthy stockpile of retirement savings, you can pull those funds out to go toward the home down payment on your principal residence, as long as they’ve been sheltered in your RRSP for at least 90 days.
It’s a bit like borrowing from your future self to make today’s home purchase possible; you must pay your RRSP back within a 15-year timeline, with a minimum contribution of one 15th of the total amount made each year. If you fail to make your annual contribution, that portion of funds are earmarked as income, and you’ll be taxed on it at your full rate.
Many Canadians have taken the opportunity to dip into their retirement savings to fund their home purchase – and a few new changes were recently announced by the federal government to make the HBP even more accessible for buyers. Here’s a look at what’s changed.
Up to $35,000 Can Now Be Withdrawn
For the first time in a decade, the government has expanded the amount that can be taken tax-free from RRSPs, from $25,000 to $35,000 for an individual (up to a total of $70,000 if both buyers are first-timers and have saved the maximum). This change went into effect on March 19, 2019, and is also temporarily retroactive for homebuyers who made an HBP withdrawal in 2019 before the announcement was made. In these cases, buyers can make a second withdrawal to a total of $35,000 if the first was made between January 1 and March 19. However, any withdrawals made before that date can’t be added to.
It’s also important to be aware that the 15-year payback timeline will remain the same, despite the larger allowed maximum, meaning home buyers could be looking at materially larger annual payments if they access the total allowable.
You Can Still be a First-Time Buyer Post-Breakup
However, the change that will likely have the most profound impact on Canadians are new rules for those coming out of the dissolution of a marriage, whether to a spouse or a common-law partner. Under the old HBP criteria, these individuals would not be considered first-time homebuyers if they had owned, or dwelled in, a matrimonial home with their partner. Now, however, they can retain their first-timer status, allowing them to access their RRSPs to either buy a new home, or buy the matrimonial home out from their ex-partner. The change will go into effect in 2020, and will require the following:
- Individuals must have separated from their partner within the past four years, and have been living apart from them for a minimum of 90 days when the withdrawal is made.
- They cannot be living with a new spouse or common-law partner when the new withdrawal is made.
- If the individual owns and occupies a home that was the individual’s principal place of residence at the time of the withdrawal, either:
- That home is not the qualifying home that the individual intends to acquire with the funds obtained from the withdrawal, and the individual sells the home (or disposes of their interest or right in the home to their separated spouse or common-law partner) no later than the end of the second calendar year after the year of the withdrawal, or
- The individual otherwise acquires the interest or right of their separated spouse or common-law partner in the home (e.g., where the home is the matrimonial home) no earlier than 30 days before the withdrawal and no later than September 30th of the year following the withdrawal; and
- If the individual has a new spouse or common-law partner at the time of the withdrawal, the new spouse or common-law partner does not own and occupy a home that is the individual’s principal place of residence.
Another major change to the HBP is that individuals who’ve experienced a marriage breakdown – such as a separation, divorce, or split from a common-law partner – can once again be considered first-time home buyers and access the HBP to purchase or build a new home, or buy out their partner’s share of the former matrimonial home; under the previous criteria, these individuals would not have qualified as first-timers as they had dwelled within a home owned by their spouse, regardless or not if they had contributed to it financially. The new changes will go into effect in 2020.
Penelope Graham is the managing editor at Zoocasa, a full-service brokerage that offers advanced online search tools to empower Canadians with the data and expertise they need to make more successful real estate decisions. View real estate listings, including Toronto and Vancouver houses for sale, and sold prices in Toronto, at zoocasa.com or download our free iOS app.