What first-time homebuyers need to know about the budget that was delivered on January 27, 2009.
The Government has ear-marked $15 million to nudge Canadians with RRSP's into buying homes. Now you can withdraw $25,000 tax free from your RRSP to buy or build a first home - up from a previous amount of $20,000.
The Home Buyers' Plan (HBP)
The Home Buyers' Plan is a program that allows you to withdraw up to $25,000 from your registered retirement savings plan (RRSP) to buy or build a qualifying home for yourself or for a related person with a disability.
Conditions for participating in the HBP
Only the individual who is entitled to receive payments from the RRSP (the annuitant) can withdraw funds from an RRSP. You can make withdrawls from more than one RRSP as long as you are the annuitant (plan owner) of each RRSP. Your RRSP issuer will not withhold tax on these amounts.
Generally, you will not be allowed to withdraw fund from a locked-in RRSP.
To participate in the HBP, ONE of the following conditions must apply:
You are withdrawing funds to buy or build a home for yourself as a first-time homebuyer; or
You are withdrawing funds to buy or build a house for a related person with a disability.
In addition, ALL of the following conditions must apply:
You must enter into a written agreement (Offer of purchase) to buy or build a qualifying home. The agreement must be with a builder or contractor, or with a Realtor or private seller. Obtaining a pre-approved mortgage does not satisfy this condition.
You intend to occupy the qualifying home as your principal place of residence.
Your repayable HBP balance on January 1 of the year of the withdrawl is 0.
Neither you nor your spouse or common-law partner owns the qualifying home more than 30 days before the withdrawl.
You are a resident of Canada.
You buy or build the qualifying home before October 1 of the year after the withdrawl.
Paying Yourself Back
Your first repayment is due the second year following the year in which you made your withdrawls.
Each year, the Canada Revenue Agency will send you a statement of account with your notice of assessment or notice of reassessment. The statement will include:
the amount you have repaid (including any additional payments);
your balance for the HBP, and
the amount of the next repayment you should make.
You have up to 15 years to repay the amount that you withdrew under the HBP. Generally, for each year of your repayment period, you have to repay 1/15 of the total amount you withdrew until the full amount is repaid to your RRSPs.
For example, if you withdrew funds from your RRSP in July 2009, you must may at least 1/15 of the withdrawl in 2011 (of the first 60 days of 2012).
Other Important things in the Budget to be Aware of
The Federal budget offers several measures of interest to people who plan to renovate or buy a home. Here's how they could theoretically work in unison for a first-time buyer:
Step 1: Claim the first-time homebuyer's tax credit. Offers tax relief of up to $750 to first-time buyers to help defray closing costs on their purchase.
Step 2: Take advantages of changes to the federal Home Buyers' Program (HBP - see above). You can take up to $25,000 out of your RRSPs to buy a first home and pay no taxes, up from $20,000.
STEP 3: Renovate your home with the help of the temporary new Home Renovation Tax Credit. Claim up to $1,350 in tax relief for upgrades to your home done before February 1, 2010; available to everyone, not just first-time buyers; applies to renovations costing $1,000 to $10,000.
Step 4: Get energy efficient using the ecoEnergy Retrofit Program, which was expanded in the budget. Get a grant of up to $5,000 for changes to your home that add to its energy efficiency; you can also claim the home reno tax credit for these upgrades.
For more valuable information for first-time home buyers, please visit our website at www.dmandzuk.ca!
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