Increasing Withdrawal Limits Under the Home Buyers’ Plan

Saving the down payment for a home can be a challenge for many first-time home buyers.

The Home Buyers’ Plan (HBP) allows first-time home buyers to withdraw up to $20,000 from a Registered Retirement Savings Plan (RRSP) to purchase or build a home. Unlike regular RRSP withdrawals, HBP withdrawals are not included in income when withdrawn. Amounts withdrawn under the HBP must be repaid over a 15-year period, starting the second year following the year of the withdrawal, or included in the individual’s income if not repaid.

To provide first-time home buyers with additional access to their RRSP savings to purchase or build a home, Budget 2009 has increased the HBP withdrawal limit to $25,000 from $20,000 in respect of withdrawals made after January 27, 2009.

With the $5,000 increase to the withdrawal limit, two first-time home buyers purchasing a home jointly (e.g. a married or common-law couple) with sufficient RRSP funds in each of their names may now together withdraw up to $50,000 from their RRSP funds toward the purchase of a home in Canada.

It is estimated that this measure will cost $15 million in each of 2009–10 and 2010–11.

First-Time Home Buyers’ Tax Credit

The costs associated with purchasing a home, such as legal fees, disbursements and land transfer taxes, can be a particular burden for first-time home buyers, who must pay these costs on top of saving the money for a down payment.  These costs can add up to approximately 3% of the purchase price of the home.

To assist first-time home buyers with the costs associated with the purchase of a home, Budget 2009 has introduced a First-Time Home Buyers’ Tax Credit - a $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27, 2009. For an eligible individual, the credit will provide up to $750 in federal tax relief starting in 2009.

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