Part B: What benefits besides the HBP, does the government give for First time home buyers?

Thanks for all your help.

Thx, I enjoy your site…
Peter

What if the leased lot is on a lake, in cottage territory? Would that make it hard to show intent for use as principle residence (current renter)?

I have a question regarding one of the requirements for the HBP = “occupy the qualifying home as your principal place of residence”.

I originally purchased my condo unit in 2007 but I only took out $25K from my RRSP in September 2010 to use it as a further downpayment. I got Occupancy in November 2010. However, I decided to rent out my unit as I decided to move to another country for business for a few months. I am now looking to move into the condo in September/October 2011.

Based on the condition, it states that when I withdrew the funds I had to have the intention to live there (which I did but circumstances changed). I am now wondering about the statement of “occupy the qualifying home as your principal place of residence NO LATER THAN ONE YEAR AFTER BUYING OR BUILDING IT.” From what date does this one year rule apply?

The condition further states:
“In some cases, you may not occupy the qualifying home by the end of the 12-month period after you bought or built it. If this happens, you are still considered to have satisfied this condition if, at the time you withdrew funds under the HBP, you did in fact, intend to occupy the home as your principal place of residence no later than one year after buying or building it.”

HOW CAN A PERSON PROVE THAT?

Any help/advice would be much appreciated!!

if anyone could clear this up for me id appreciate it

Yes I understand. Thank you for your explanation.

Dan

You have asked a couple of times about how exactly the the HBP is repaid. Your ideas don’t really make sense because you need to understand how the repayment happens.

Your RRSP administrator does not track your HBP. It is only tracked by CRA. When you first withdraw, you use a CRA form to get approval and designate the withdrawal as a HBP withdrawal.

After that, CRA will track how much you own and you will get a statement showing your balance and the minimum you have to pay back each year.

Your repayment is made on your tax return. You make an RRSP contribution anywhere. When you file your tax return, you designate how much of your RRSP contributions for the year you are claiming a deduction for (to get a refund) and how much of your contributions you want to apply to the HBP. You will not get a tax deduction for the amount you designate to the HBP, so you normally apply the minimum amount (although there are various strategies depending on your tax brackets in different years).

Does that clarify it, Dan? All the tracking is done by CRA – none by your RRSP administrators.

So you understand the strategy, with the HBP, you are borrowing from yourself. There is no interest, but the cost can be high, since you lose the amount that your investments would have made if they had stayed invested. If you invest properly in equity funds, you could easily lose 10%/year or more. However, there are benefits in helping you have the down payment to buy your home and save CMHC fees.

Ed

Brian is right that you will have to choose between claiming your cottage as your principal residence and using the Home Buyers Plan when you buy a home.

Since you live in your cottage for much of the summer, it is reasonable to assume that you “normally inhabit” your cottage. So claiming it as your principal residence is probably reasonable.

Which of the 2 is better for you depends on a few factors, such as how much the cottage has grown in value and whether you need the HBP to get a large enough down payment (and reduce CMHC fees).

Getting professional advice on this is a good idea.

Ed

You can put the HBP repayment into ANY rrsp account you have established. You can choose that to be the original account you withdrew from, or a new one… it’s your decision. Although, I don’t know if there’s any advantage to having multiple accounts. Find an advisor you trust and who has your interests first, and consider consolidating your RRSP accounts into one.

Again, you just have to repay it into an RRSP plan in the name of the HBP participant (regardless of what institution that may be).

If you choose not to pay the amount required, that amount will be added into your tax return as ordinary income earned. Let’s suppose you withdrew $15,000 and have to pay back $1000. Supposing you earned $50,000 taxable income from employment then not paying $1,000 into your RRSP and designating that as a repayment would show your bottom line as earning $51,000.

Assuming again that this was the first repayment you were scheduled to make, of the 15 payments (1/15th per year over 15 years), then your assessment should show that you owe $14,000. It is all tracked.

Just be sure that if you make the repayment, you should indicate this through the appropriate form (Schedule 7) when completing tax return.

Speak with a tax preparer/accountant for more details on filing your return.

Brian.

When you purchase additional RRSP to pay back the yearly repayment, you are essentially starting a new account and by the end of your repayment you will have accumulated the total of your original withdrawl?

Am I getting this correctly? Let me know.

My other question is if I chose not to repay via RRSP and just pay the amount through my tax return(cheque), where does that repayment show? Will that be credited back to my original RRSP account from where the funds originally came from?

Dan

To be eligible for the HBP, you must:
1. be resident of Canada
2. be a “first-time home buyer”
3. have entered into a written agreement to buy or build a “qualifying” home…

A “first-time home buyer”, simply stated, is a person that has not owned a home that he or she occupied as the principal residence in the last four years.

Being a renter, on the surface it would appear as if you would be eligible to participate.

The only thing I would caution (and you should seek the opinion of an accountant on this matter) is that using the HBP may impact your ability to use the cottage in its entirety for principal residence exemption in the future, to reduce capital gains on a disposition.

This may or may not be of concern to you and to ultimately determine the true cost of the decision you would need to make present and future valuation calculations. Regardless, the advice of an accountant would be my next phone call if I were in your position.

Good question. In your case the 89-day rule supersedes the 3-year rule.

The 89-day rule applies to withdrawals under the Home Buyers Plan, while the 3-year rule (2 full calendar years) applies to other RRSP withdrawals.

And yes, you get the deduction for spousal RRSP contributions to your wife’s spousal RRSP.

Ed

Thanks for the reply. I understand that it will be my wifes withdrawl to the HBP, but I am assuming that I get the Tax benefit of putting it into the spousal RRSP at my mariginal tax rate not her’s correct?

Also when I reviewed the spousal RRSP posting I found the following statement:

“The main caveat being that the lower income spouse cannot withdraw from the plan until 2 calendar years (Jan 1-Dec 31) after the last contribution. Otherwise, the withdrawal will be taxed in the hands of the contributor.”

My concern is if I deposit money into the Spousal in early 2013 to meet the RRSP deadline I can’t use these funds until 2015? Does this rule supersede the 89 day rule of the HBP or would HBP’s 89 day rule overrule the 2 year requirement and allow me to take out the funds in 2013 once 89 days has past?

Thank you so much for your help Ed.

Yes, the spousal RRSP can be used for the HBP, but that would be your wife’s HBP withdrawal, not yours. The spousal RRSP is actually in her name, so she would be making that withdrawal and she would have to repay it.

Ed