Do’s and don’ts of the Home Buyer’s Plan

The Home Buyer’s Plan (HBP) allows an individual and his or her spouse to “borrow” up to $20,000 from his or her RRSP to use toward the purchase of a home. The withdrawal is generally not taxable.

We say “generally” because there is a long list of rules that you must follow in order for your withdrawal to be tax-free.

Like everything else in tax, the rules are quite specific, so it’s important that you understand them completely before taking any money out of your RRSP to purchase a home. Let’s take a closer look at the rules.

Generally, before you can withdraw funds from your RRSPs, you have to meet the first-time home buyer’s condition.

You are not considered a first-time home buyer if, at any time during the period beginning January 1 of the fourth year before the year of withdrawal and ending 31 days before your withdrawal, you or your spouse owned a home that you occupied as your principal place of residence.

In simpler terms, to participate in 2008, you and your spouse must not own your principal residence between January 1, 2004 and 31 days before your withdrawal.

You cannot use the HBP if you are currently married (including common-law) and your spouse owned a home that was your principal residence during the marriage within the time period described above. This is true even if you have never participated in the HBP and have never owned a home.