The Home Buyers’ Plan (HBP)

By PAIP Canada staff

Having covered the First-Home Savings Account (FHSA) last week, we’re going to consider the well-established Home Buyers’ Plan (HBP) this week.

To ruin the surprise, the FHSA is going to take first place, followed by the HBP.
Established in 1992, Canadians are allowed to withdraw up to $35,000 from their Retirement Savings Plan (RSP) on a tax-free basis if they qualify as a first-time home buyer and are purchasing a home. First time home buyers are those who do not own a home as a primary residence, both in the current year and in the past four calendar years.

Once the withdrawal is made, the taxpayer is required to repay the amount withdrawn beginning in the second calendar year following the withdrawal. If a repayment is missed, then one fifteenth of the amount will be considered income for the year and subject to taxes. Essentially, the repayments must be completed over a period of 15 years or less.

When compared to the new FHSA, the main difference between these two offerings is the requirement to repay the amounts. With the FHSA, taxpayers not only don’t have to repay the amount withdrawn, but can also receive a tax deduction for their contributions without it impacting their unused RSP room.
For the HBP, all amounts deposited into the RSP reduces one’s unused room. The advantage is clear.

On the contribution side, the annual maximum for the FHSA is $8,000 and the lifetime maximum is $35,000, whereas the RSP does not have a hard maximum. Instead, the maximum RSP contribution is a percentage (18%) of the previous year’s income up to a specified limit. For the 2023 tax year, that amount is $30,780.

Given the introduction of the FHSA, it was unlikely for the new plan to be less attractive that the existing HBP. It’s clearly the better of the two, but until the maximum amount of $35,000 can be deposited into the plan, there’s still room for two separate withdrawals for those who have already started saving inside their RSP plans.