MODULE 12: UNIT 3 Home Buyers Plan

Question 1

Nature

Answer 1

• The HBP is established as a program that effectively allows an individual to lend herself funds from her RRSP, free of tax, for the purpose of buying or building a qualifying home
• Locked-in plans are not an eligible source of funds for an HBP
• Taxpayer may make an HPB withdrawal only from an RRSP which they are the annuitant.
• Funds may be withdrawn from spousal RRSP , where the spousal RRSP annuitant is the HBP participant
• The annuitant of an RRSP may withdraw up to a cumulative maximum of $25,000 from one or more of her RRSPs to finance the purchase of a qualified home

Question 2

Qualifying Conditions

Answer 2

SEE SLIDE 3

SEE Page 12-41

Question 3

Eligibility: Regular Program

Answer 3

SEE PAGES 12-42

Question 4

Eligibility: Disabled Person’s Assistance

Answer 4

An RRSP annuitant is permitted to withdraw funds for the purchase of a qualifying home for a disabled person, who may be the annuitant or who is related to the annuitant

“Related to” refers to an individual who is related to the annuitant by blood, marriage or adoption

Question 5

Qualifying Home

Answer 5

The Act defines a “qualifying home” in section 146.01(1) as:

• A housing unit located in Canada
• A share of the capital stock of a cooperative housing corporation,
• the holder of which is entitled to possession of a housing unit located in Canada

Single-family homes
semi-detached structures
apartment buildings (including duplexes and triplexes)
condominium units
mobile homes all qualify

Question 6

Withdrawals

Answer 6

The maximum amount of all withdrawals from an RRSP under the HBP is $25,000 per taxpayer; where both spouses are eligible to participate in the HBP, each spouse may withdraw up to $25,000 for a combined total of $50,000

Question 7

Restriction on RRSP Deduction

Answer 7

A taxpayer’s RRSP deduction limits will not be affected by participation in the HBP, provided the taxpayer does not:

• Contribute to her RRSP within 90 days prior to the HBP withdrawal
• Contribute to a spousal RRSP within 90 days prior to the spouse’s HBP withdrawal

Deduction for contributions made to an RRSP during the 90-day period prior to a withdrawal could be limited based on the FMV of the plan 90 days prior to the withdrawal, and the amount of the withdrawal

HBP withdrawals do not affect the RRSP deduction except for the 90-day rule outlined above

Question 8

Repayment of Withdrawals: Schedule and Calculation

Answer 8

• The HBP is established as a loan from an RRSP and, as such, a taxpayer who participates in the HBP has a 15-year period during which she must repay the RRSP amount
• Repayment period begins the second calendar year following the year in which the taxpayer made the withdrawals
• Minimum is 1/15 of the original HBP balance

Question 9

Repayment of Withdrawals: Designating a Repayment

Answer 9

To make a repayment, the taxpayer must make an RRSP contribution during the applicable repayment period and then must file a Schedule 7, RRSP Unused Contributions, Transfers, and HBP or LLP Activities, as part of her Income Tax Return

• tax consequence for failing to make a repayment
• Contributions to RRSP may not be designated as HBP repayment if:
• direct transfer from another registered plan
• acquired through a transfer, such as retiring allowance

Question 10

HBP Balance

Answer 10

When an HBP withdrawal is made from an RRSP, it creates an HBP balance. The balance at any time is:

The total of all eligible HBP withdrawals made by the taxpayer

minus

The total of all amounts designated as an HBP repayment

minus

The total of all amounts included in the taxpayer’s income because the required repayment was not made

Question 11

Shortened Repayment Period

Answer 11

In the following situations, the repayment period may be shorter than 15 years:

• HBP participant dies
• -must include participant’s income for the year of death
• -equal to HBP balance before death (less) any RRSP contributions made before death and designated as HBP repayment
• HBP participant becomes a non-resident
• • must repay balance the date she files income return for the year
• -60 days after she ceases to be a canadian citizen
• HBP participant is 70 years of age or over
• -may repay total HBP balance
• • if not repaid during the year the participant reaches age 71, participant must include income for yeach later year, and that amount would have been his annual payment as it becomes due

Question 12

Cancelling Participation

Answer 12

A taxpayer can cancel her participation in the HBP if she meets all of the conditions required for participation, except that:

• She did not buy or build a qualifying home or replacement property
• She became a non-resident before buying or building a qualifying home or a replacement property

A taxpayer who gave the HBP funds withdrawn to a related disabled person to acquire a home may cancel her participation in the HBP if she meets all of the conditions required for participation, except that:

• The disabled person did not buy or build a qualifying home or replacement property
• the disabled person became a non-resident before buying or building a qualifying home or a replacement property