Clarifying the Home Buyers’ Plan RRSP withdrawal process

Home Buyers' PlanYou can find a brief summary of the Home Buyers Plan (HBP), and associated credits on my website here:  For this posting, I will focus on the HBP RRSP credit, specifically as it pertains to clarification of the process as well as associated conditions and qualifications for exceptions.

The maximum allowable withdrawal amount is $25,000. When withdrawing RRSP’s for the purposes of the HBP, form T1036 (HBP Request to Withdraw Funds from an RRSP form) must be filled out. This is typically done by the financial institution on the home buyers’ behalf. The form can be found here.

Once the withdrawal is made, the construction must be completed, or purchase made, of the qualifying home before October 1st of year following the year of withdrawal.  If the home buyer fails to meet this condition for the intended property purchase, two options are available:

1)      Cancel the participation to the HBP, subject to the cancellation payment (equivalent to the amount withdrawn) due by December 31 of the year following the year the funds were withdrawn.

2)      Purchase or construct a different home, termed a replacement property, before October 1st of the year following the withdrawal.

When utilizing the replacement property option, a new T1036 does not need to be filled out, but the prospective home buyer must send the information in a letter to the following address: 

Pension Workflow Section
Ottawa Technology Centre
875 Heron Road
Ottawa ON K1A 1A2

The letter should include the buyer’s name, SIN, current address as well as the address (and phone number, if possible) of the replacement property with a statement of intention to occupy the replacement property as the principal residence no later than one year after purchasing or building it.

 What if circumstances were to arise that did not allow the home buyer to purchase the property before October 1st of the following year? There are allowances for extensions provided the home buyer meet one of the following two conditions:

1)      A written agreement is made by October 1st of the year following the year of withdrawal in which the home buyer agrees to purchase a qualifying home or replacement property by October 1st of the ensuing year (the second year after the withdrawal).  For example, if the RRSP withdrawal was made in 2013, a written agreement must be made by October 1st 2014 stating the buyer’s intention to purchase or build the qualifying property no later than October 1st 2015. Provided that the home buyer follows through with the agreed upon terms and is a Canadian resident up to the time of purchase or construction, then the condition for extension would have been satisfied and no cancellation payment would be required.

2)      In cases of a purchased property from builders that have closing dates multiple years into the future (such as condominiums), an amount would have to be paid by October 1st of the year following the year of withdrawal to the contractors or suppliers for materials or otherwise towards the property’s construction that was, at minimum, equal to the total of all eligible withdrawals made under the HBP.

For additional information, consult the Canada Revenue Agency’s HBP guide here.

 

Disclaimer: The information contained herein is not meant to be professional advice but for educational purposes only. You should consult with your accountant when handling such matters.