Make The Most of the RRSP Home Buyers Plan

The RRSP Home Buyers’ Plan (HBP) is a tax-advantaged way to save and pay for your first home. Basically, it allows you to take an interest-free loan from your RRSP to build or buy a qualifying home. Learn how to maximize the money you can access for your home purchase using the HBP. Further, understand the nuances that allow you to double dip with the First Home Savings Account (FHSA). After accessing the HBP, consider how to repay it to maximize your overall investment plan strategically.

Maximize RRSP Availability for the HBP

The Home Buyers’ Plan allows withdrawals of up to $60K per person from an RRSP. That is potentially up to $120K for a couple if you plan ahead.

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Prioritizing the RRSP HBP vs FHSA

To be eligible for withdrawal, the money must have been in the RRSP for at least 90 days before the withdrawal. This is in contrast to the FHSA, which has no minimum holding period. So, if time and money are going to be tight, prioritize contributing to the RRSP. You could withdraw the money under the HBP, put it into your FHSA (even for a day), and then withdraw it to buy the home. That allows for an RRSP deduction against your income, plus an FHSA deduction against your income (a double dip deduction!). Further, the money comes out of your FHSA tax-free when used to purchase a qualifying home (tax elimination).

Even if you are going to prioritize the RRSP to make use of the Home Buyer’s Plan and the FHSA, open your FHSA early rather than late. You can only accrue $8K/yr in the FHSA (up to $40K max) per person. So, opening it early allows you to shift more into it and take more out tax-free. Further, if you plan to have more than $16K of room in an FHSA, prioritize contributing enough to it to keep the unused room below $16K. You cannot contribute more than $16K/yr to an FHSA, even if more is available. Don’t miss out on the opportunity to eliminate tax by leaving more than $16K to unused if you are planning the RRSP/FHSA double dip.

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Aiming for $120K as a Couple

If you are aiming to access the full $120K for the Home Buyer’s Plan as a couple, you may need to plan accordingly. You would want to make sure that you each have at least $60K in your RRSPs to draw upon. That requires some strategy if you would not otherwise both get there individually.

Prioritize the higher-income spouse as the contributor first. They get the largest tax refund for RRSP contributions. Technically, that money must come from their income. That could mean the lower-income spouse covering more of the living expenses to preserve enough of the high-income spouse’s money to make the contribution. If you can both max out your own RRSPs each year, this doesn’t matter. However, it is helpful if you must choose.

If the higher-income spouse’s RRSP exceeds $60K and the lower-income spouse’s does not, a spousal RRSP can be useful. A lower-income spouse generates less RRSP room on their own. With a low income tax rate, it may also not always make sense for them to contribute to their own RRSP. That is especially true when they have other options, like a TFSA, to contribute to. The spousal RRSP allows the high-income spouse to contribute using some of their contribution room, and the contribution is deducted at their high-income tax rate. However, the spousal RRSP is owned by the spouse. So, that money is part of their $60K maximum.

Normally, you have to wait two calendar years before the low-income spouse can withdraw money from a spousal RRSP. If done earlier, it is attributed to the high-income contributor. However, the HBP is not a taxable RRSP withdrawal. So, that holding period does not apply (although the 90-day minimum still does).

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What if I am incorporated?

If you are incorporated, you have hopefully paid yourself some salary anyway. In the early career period, when your corporation does not generate significant passive investment income, a salary is usually more tax-efficient. The tax on salary is lower than the combined corporate tax and dividend tax.

Using dividends instead of salary does leave more money in the corporation to invest. However, the corporate investment income is taxed each year (it is not in an RRSP). Further, you still pay dividend tax to get that money out of the corporation. People often underestimate that aspect until they want a large chunk of personal cash, like for buying a house. There are some ways to plan for a big spend. Still, there will usually be significant tax owing and less after-tax money available than they expected.

Paying salary generates RRSP room, and you should use it. Some people may have paid a salary from their corporation, but not paid the extra required to use the RRSP room that they generated. That may have been under the guise of keeping more in their corporation, but they are missing out on the tax-sheltered growth of using an RRSP. Having already paid the tax on salary, that was the tax hit – use the RRSP benefit that comes with it. They may also miss out on using the Home Buyer’s Plan. The HBP offers the opportunity to invest more money upfront, tax-free growth, and access to it for purchasing a home without a current tax bill. Better than a corporation.

Accessing The Home Buyer’s Plan

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Qualifying

To access your RRSP using the Home Buyer’s Plan, you must have a written agreement for the purchase of a qualifying home that you intend to occupy within one year of purchase. That definition is the same as the one used for the FHSA. The HBP has the added option to use it if buying a home for a specified disabled person (not just if it is your first home). If accessing the HBP for a second time, you must have repaid your previous HBP before the calendar year that you plan to access it again.

You must also be a resident of Canada from the time of making your first HBP withdrawal until buying the home. Again, the money must also have been in the RRSP for at least 90 days before withdrawal.

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Home Buyers Plan Withdrawal Paperwork

To make an HBP withdrawal, you must fill out a T1036 Form and submit it to the brokerage that holds your RRSP. For example, we use Qtrade and email Qtrade customer support the form, along with instructions on which RRSP account to withdraw from and which of your accounts to move that cash to. Those who use my Qtrade link to open an RRSP get access to their premier customer support right away (otherwise requires $500K invested).

Make sure that you sell enough of the holdings in your RRSP to have the money available as cash inside the account. That usually needs to be done at least two days in advance.

Home Buyer’s Plan Repayment

You have to start repaying the HBP beginning the second year after the year you made your first withdrawal. For example, if I made my first withdrawal in 2026, then I would have to start making repayments in 2028. That repayment can be made as an RRSP contribution in that year or the first 60 days of the following year (just like regular RRSP contributions). So, in our 2026 withdrawal example, you really have until late February 2029 to make a payment. If you do not make the minimum required HBP repayment for a calendar year, the shortfall will be taxed as income in that year.

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Designating RRSP Contributions as HBP Repayment

Importantly, Home Buyer’s Plan repayments must be designated. If you contribute to your RRSP without doing this, it will use RRSP contribution room and may also cause you to miss your minimum HBP repayment. Also, if you didn’t designate a repayment, plus maxed out your new RRSP contribution room, CRA could read that as an overcontribution.

To make your repayment, you make a contribution to your RRSP. Then, you must also put the amount you want to designate as HBP repayment onto line 24600 of a Schedule 7 RRSP Form and submit that with your personal income tax return.

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What is Your Minimum Payment?

You will receive an updated HBP statement of account with your notice of assessment after filing your personal tax return. It will show your balance and the minimum payment for the following year. You can also figure it out in advance. Basically, it is the balance two years after accessing the HBP divided by fifteen. If you make a larger repayment, it is the remaining balance divided by the remaining years (a total of fifteen years, starting two years after accessing). This is illustrated below.

For HBP accessed between Jan 1st, 2022 and Dec 31, 2025, there is an additional 2-year delay before prepayment begins. So, if you are qualified to make a withdrawal (signed deal) for a closing in 2026, consider doing it before the year’s end.

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Should You Repay Your HBP Fast or Slow?

Most people do not like having a debt to repay. Even if it is to your own RRSP. I know. This is one of the mistakes that my wife and I made. We repaid our Home Buyer’s Plan withdrawal within a few years. Our logic was that it would get our tax-sheltered account regrowing faster. That was faulty logic because there will eventually be tax due on the RRSP, and in the meantime, it is an interest-free loan.

Because of the baked-in tax liability in an RRSP, some of that free loan is actually from the Government. For example, if I am currently in a 54% tax bracket. I can choose to spend some of my 54% taxed money to repay the HBP. By not doing so, the government effectively subsidizes 54% of the loan.

Interest-free loans should be repaid as slowly as possible because you could use that money for other things instead. For example, you could build or rebuild your TFSA faster. Add extra to an RESP. If you are incorporated, you could draw less from the corporation and keep more tax-deferred investments growing. If you are really debt-averse, you could repay your mortgage faster. At least that is saving you interest.