 The
Money Management Newsletter: RSP
Planning
Federal Home Buyer's Plan frees up RRSP funds
for purchase of first home
Provisions to assist the purchase of accessible
homes through Home Buyer's Plan are of great utility, says Martin Kosterman
of Fiscal Agents
Special to Fiscal Agents
Money Management Newsletter, July 2002
The word is out that the federal government's Home Buyers'
Plan is a useful tool for Canadians looking to buy their first home. But,
given that it permits them to withdraw up to $20,000 from their registered
retirement savings plans (RRSPs), another question emerges: how useful
is the HBP as an investment-planning tool?
"Ideally, new home buyers should only contemplate
taking advantage of the HBP within a carefully structured, well-planned
financial blueprint," advises Martin Kosterman, account executive with
Fiscal Agents Financial Services. "But that said, it is clear that many
people don't plan their financial futures that far ahead. Either way,
they should exercise care to ensure that they don't derail existing financial
arrangements or hurt themselves from a tax-planning standpoint."
Notes Kosterman, "Not everyone realizes that the HBP can also be used
to finance housing for a disabled or otherwise mobility-impaired relative,
or for yourself if you have become disabled. This is one of the best-kept
secrets of the regulations.
"The HBP can be a valuable and useful tool, but only if used wisely. First,
make sure you understand how the plan works."
| Home Buyer's Plan: The Basics |
As explained on the Govenments
web site the HBP is a program that allows you to withdraw up to $20,000
from your registered retirement savings plans (RRSPs) to buy or build
a qualifying home. Withdrawals that meet all applicable HBP conditions
do not have to be included in your income, and your RRSP issuer will not
withhold tax on these amounts. If you buy the qualifying home together
with your spouse or common-law partner, or other individuals, each of
you can withdraw up to $20,000.
Under the HBP, you have to repay all withdrawals to your RRSPs within
a period of no more than 15 years. Generally, you will have to repay an
amount to your RRSPs each year until you have repaid all the amount you
withdrew. If you do not repay the amount due for a year, it will be included
in your income for that year.
Are you a first-time home buyer?
Before you can withdraw funds from your RRSPs to buy
or build a qualifying home, you have to meet the first-time home-buyer's
condition.
As explained by Canada Customs and Revenue, you are
not considered a first-time home buyer if, at any time during the period
beginning January 1 of the fourth year before the year of withdrawal and
ending 31 days before your withdrawal, you or your spouse or common-law
partner owned a home that you occupied as your principal place of residence.
To make an eligible withdrawal under the HBP, you have
to use Form T1036, Home Buyers' Plan (HBP) - Request to Withdraw Funds
from an RRSP. You have to complete Form T1036 for each withdrawal you
make - find it in its electronic format at www.ccra.gc.ca or order a copy
of the form by calling 1-800-959-2221.
Accessible homes for the disabled
You may also use the HBP even if not a first-time home
buyer if you are buying for a disabled relative or have become disabled
yourself, as summarized:
 |
You are a disabled person and you
withdraw funds from your RRSPs under the HBP to acquire a home that
is more accessible, or better suited to your needs; |
|
You withdraw funds from your RRSPs
under the HBP to acquire a home for a disabled person related to you
by blood, marriage or adoption that is more accessible to, or better
suited to the needs of, that person; or |
|
You withdraw funds from your RRSPs
under the HBP and give those funds to a disabled person related to
you by blood, marriage or adoption to acquire a home that is more
accessible to, or better suited to the needs of, that person. |
On Public Policy:
"The aim of the program is to promote the public-policy goal of home ownership.
Prospective home buyers in Ontario will also want to investigate the Ontario
Home Ownership Savings Plan."
On Investment Planning and the HBP:
"In general, buying a family home is a lifestyle decision, not an investment-planning
one. But that doesn't mean that the two functions are not related. Removing
funds from an RRSP under the HBP should be planned in advance - if you
intend to shelter funds in an RRSP for the purpose of purchasing a home
in the future, they should be invested in short-term investments, GICs
and the like, rather than other vehicles that are part of a buy-and-hold
strategy.
On Real Estate vs. the Market:
"At a time when most investment markets are volatile but real estate in
all probability will continue to increase in value, an investor may come
to view the HBP as a tax-sheltered way to shift funds from poorly performing
equities into a real-estate investment. There is some sense to this thinking,
but as I advised earlier, using the HBP should mainly be considered a
tool within a long-term financial plan."
On Buying a More Accessible Home:
"I view the provisions of the HBP that free up RRSP-protected money for
accessible housing for disabled relatives as having excellent potential
to assist younger adults caring for aging parents. The loss of mobility
due to arthritic hips or knees, diabetes or other causes can throw a family
into a crisis as the large family home with its multiple stories becomes
unmanageable. Funding the purchase of a new, more accessible home with
the help of a HBP is an viable solution in these cases and others.
Can you participate in the Lifelong Learning
Plan (LLP) at the same time?
Canada Customs and Revenueexplains that you can participate
in the HBP even if you have withdrawn funds from your RRSPs under the
LLP that you have not yet fully repaid. For more information about the
LLP, get the guide called Lifelong Learning Plan.
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Questions about the above send e-mail to:
moneyman@fiscalagents.com 
© , Fiscal Agents Money Management Newsletter
25 Lakeshore Road, Oakville, On L6K 1C6.
(905) 844-7700
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