Are you a Canadian doctor ready to make the plunge into home ownership? Are you a first-time homebuyer, looking for ways to make homeownership more affordable? As of 2019, the Canadian federal government updated the Home Buyers’ Plan (HBP), which allows homebuyers, especially doctors, to borrow up to $35,000 from their RRSPs (Registered Retirement Savings Plans). At MedTax.ca, we understand the unique financial needs of medical professionals and are here to guide you through this powerful program.
What Is the Home Buyers’ Plan (HBP)?
The Home Buyers’ Plan is a government initiative designed to support first-time homebuyers, particularly doctors, in financing the purchase of a property. Under this plan, eligible individuals can borrow a maximum of $35,000 from their RRSP in a single tax year, providing much-needed assistance in achieving their homeownership dreams.
To participate in the HBP, you must meet the following conditions:
- Be a first-time homebuyer.
- Enter into a written agreement to purchase or construct a qualifying home for yourself or a person with a disability.
- Plan to designate the home as your principal residence no later than one year after purchasing or constructing it.
- Be a Canadian resident.
- Make all RRSP withdrawals in the same tax year.
Usage of HBP Withdrawals
The funds withdrawn under the Home Buyers’ Plan can be used for various purposes related to homeownership, including but not limited to:
- Down Payment: You can use the withdrawn funds as a down payment for your first home.
- Home Construction: If you are constructing a new home, the funds can be used for construction costs.
- Home Renovations: In some cases, you can use the funds for renovations to make a newly purchased or constructed home suitable for your needs.
- Land Purchase: The funds can be used to purchase land on which you plan to build your first home.
Timeline for RRSP Withdrawal and Repayment
You have 15 years to repay withdrawals made from your RRSPs under the HBP, starting two years after the initial withdrawal. Each tax year, you must repay one-fifteenth of the total amount borrowed until the full amount is repaid. For example, if you borrowed the maximum amount of $35,000, your yearly repayment would be $2,333.33.
Repayments for the HBP are made through contributions to your RRSP in the year of repayment or within 60 days of the following tax year. Contributions made to a spousal RRSP account or by your spouse to your spousal RRSP account cannot be used for HBP repayments. Only contributions made to your own RRSP account are eligible.
To designate your RRSP contributions as HBP repayments, you should complete lines 24500 and 24600 on Schedule 7 of your tax return. Failing to do so will result in the HBP amount being added back as taxable income, and you’ll lose this RRSP room permanently.
You can contribute extra funds each year to reduce future repayment amounts. For example, if you withdrew the full $35,000 and paid $4,000 in the first year, the next 14 payments would be reduced to ($35,000 – $4,000) / 14 = $2,214.29 each.
Keeping Track of the Home Buyers’ Plan
The Canada Revenue Agency (CRA) provides you with a Home Buyers’ Plan Statement of Account along with your Notice of Assessment every tax year. This statement displays your total withdrawals under the HBP, how much you’ve repaid, your outstanding balance, and the amount you can contribute to your RRSPs for the upcoming tax year.
Let MedTax.ca Assist You
Navigating the Home Buyers’ Plan and other tax-related matters can be complex, especially for doctors with unique financial circumstances. At MedTax.ca, we specialize in providing tax services tailored to the needs of medical professionals in Canada. Our expertise ensures you receive the guidance necessary to make informed financial decisions and secure your future. Contact us today to explore our services and achieve your financial goals with confidence.
Visit MedTax.ca for more information and discover how we can assist you in your financial journey. We understand the financial challenges faced by doctors, and our specialized tax services are designed to support you in making homeownership more attainable. Whether you’re a general practitioner, specialist, or any other medical professional, the Home Buyers’ Plan can be a vital financial tool on your path to homeownership in Canada.
