Using the Home Buyers Plan Correctly

Introduction

The Home Buyers’ Plan, commonly referred to as the HBP, allows eligible Canadian taxpayers to withdraw funds from their Registered Retirement Savings Plan without immediate tax consequences to purchase or build a qualifying home. While the program appears straightforward, incorrect execution frequently results in unexpected income inclusion, repayment errors, and long-term retirement planning disruption.

In 2025, the increased withdrawal limits and evolving housing market conditions have made the HBP an attractive liquidity tool for first-time buyers. However, high-income individuals, business owners, and investors must carefully evaluate the technical requirements, repayment mechanics, and interaction with broader tax and retirement planning objectives before proceeding.

Overview of the Home Buyers’ Plan Framework

The HBP permits eligible individuals to withdraw up to the prescribed limit from their RRSP to buy or build a qualifying home. As of 2025, the maximum withdrawal limit per individual is 60,000 dollars. A couple may therefore access up to 120,000 dollars if both individuals qualify separately.

The withdrawal is not included in income at the time of distribution, provided all program requirements are met. However, the amount withdrawn must be repaid to the RRSP over a prescribed repayment period.

This is not a tax-free benefit. It is a tax deferral mechanism that temporarily reallocates retirement capital.

Eligibility Requirements

To participate in the HBP, several conditions must be satisfied.

The individual must be considered a first-time home buyer. Under current rules, a first-time buyer is someone who has not occupied a home they owned, or that their spouse or common-law partner owned, in the four-year period preceding the withdrawal year.

The individual must have a written agreement to buy or build a qualifying home. The property must be located in Canada and intended as a principal residence within one year of acquisition.

The RRSP funds must have been contributed at least 90 days prior to withdrawal. Contributions made within 90 days before withdrawal cannot generate both a deduction and an HBP withdrawal.

Failure to meet any of these conditions can cause the withdrawal to be treated as a taxable RRSP distribution.

Withdrawal Timing and Administrative Steps

The withdrawal must be made using the prescribed form and submitted to the RRSP issuer. Multiple withdrawals are permitted within the same calendar year, provided the cumulative total does not exceed the limit.

Timing is critical. The acquisition must occur before October of the year following the withdrawal year. If the home purchase does not proceed within the required timeframe, the withdrawn amount may need to be repaid to the RRSP or included in income.

High-income taxpayers should coordinate the withdrawal year with their income profile. Although the withdrawal itself is not taxable, repayment failures in future years may create income inclusions at marginal tax rates that are higher than anticipated.

Repayment Mechanics and Schedule

Repayment under the HBP begins in the second year following the year of withdrawal. The repayment period spans fifteen years.

Each year, one-fifteenth of the total withdrawal must be repaid to the RRSP. The required annual repayment amount is reported on the individual’s notice of assessment.

Repayments are made as RRSP contributions but are designated specifically as HBP repayments. These repayments do not generate an additional RRSP deduction. Instead, they restore retirement savings.

If the taxpayer fails to designate the required repayment amount in a given year, the shortfall is included in taxable income for that year. This income inclusion does not generate new RRSP contribution room.

For high-income earners, missing repayments can create unintended ordinary income at top marginal rates.

Impact on Retirement Growth and Opportunity Cost

While the HBP provides short-term liquidity, it reduces invested retirement capital. The opportunity cost may be significant, particularly if the withdrawn funds were invested in growth-oriented assets.

For example, a 60,000 dollar withdrawal compounded at an average annual return of six percent over fifteen years would have generated substantial tax-deferred growth. Repayment restores principal gradually, but lost compounding during early years cannot be fully recovered.

Therefore, the HBP should be evaluated against alternative financing options such as conventional mortgages, family loans, or non-registered asset liquidation.

Coordination With Spousal Planning

If both spouses qualify, each may withdraw up to the maximum limit from their respective RRSPs. However, attribution rules must be considered when spousal RRSPs are involved.

If a spouse contributed to the other spouse’s RRSP within the three-year attribution window, and the receiving spouse withdraws funds under the HBP, the withdrawal may trigger attribution of income back to the contributing spouse if rules are not properly observed.

Careful tracking of spousal contributions is essential to avoid unintended tax consequences.

Interaction With Other Housing Incentives

The HBP interacts with other housing-related tax mechanisms, including the First Home Savings Account and principal residence exemption planning.

In 2025, taxpayers may combine withdrawals from a First Home Savings Account with HBP withdrawals. However, separate eligibility and timing requirements apply. Coordinating both programs requires careful documentation.

Additionally, future capital gains planning should consider principal residence designation strategies if multiple properties are owned.

Early Termination and Special Circumstances

If a participant becomes a non-resident of Canada before fully repaying the HBP balance, special rules apply. In many cases, the remaining balance must be repaid or included in income in the year of departure.

Similarly, if a participant dies before completing repayment, the outstanding balance is generally included in income on the final return, unless a surviving spouse assumes repayment under permitted rules.

Bankruptcy, disability, or marital breakdown may also alter repayment obligations. Each situation requires individualized analysis.

Common Compliance Errors

Frequent errors include:

Withdrawing funds that were contributed less than 90 days earlier
Failing to track annual repayment obligations
Assuming repayments generate new RRSP deductions
Missing repayment deadlines
Misunderstanding first-time buyer qualification tests

Given increased data matching between financial institutions and tax authorities, administrative errors are readily identified.

Strategic Considerations for High-Income Individuals

High-income taxpayers should evaluate whether the HBP aligns with broader wealth structuring objectives.

In some cases, preserving RRSP capital for long-term compounding may outweigh the short-term liquidity benefit. In other situations, using the HBP may reduce reliance on higher-interest debt.

The decision should incorporate:

Projected marginal tax rates
Retirement income strategy
Liquidity position
Expected investment returns
Estate planning implications

A purely mechanical use of the HBP without strategic modeling may undermine long-term financial efficiency.

Conclusion

The Home Buyers’ Plan offers a structured method to access RRSP funds without immediate taxation, provided strict eligibility, timing, and repayment rules are followed. The 60,000 dollar withdrawal limit per individual enhances flexibility in 2025, but mandatory fifteen-year repayment obligations create ongoing compliance responsibilities. Missed repayments result in taxable income inclusion, and improper execution can trigger full taxation of the withdrawal. Coordination with spousal RRSP contributions, other housing incentives, and long-term retirement planning is essential.

Tax Partners can assist you in structuring your affairs properly and ensuring full compliance while optimizing your tax position.

This article is written for educational purposes.

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at info@taxpartners.ca, or by visiting our website at www.taxpartners.ca.

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