In a move to assist first-time home buyers, the federal government announced a significant increase in the withdrawal limit for the Home Buyers’ Plan (HBP) from $35,000 to $60,000. This announcement was made on Thursday, providing a fresh incentive for potential buyers to invest more in their Registered Retirement Savings Plans (RRSPs).
Jamie Golombek, CIBC Private Wealth’s Managing Director of Tax and Estate Planning in Toronto, emphasized the increased limit’s potential benefits. He explained that contributors to RRSPs would be encouraged by the higher cap, as it allows them greater access to funds for their initial home purchase.
John Oakey, CPA Canada’s Vice President of Taxation based in Dartmouth, N.S., echoed the sentiment via email, highlighting the necessity for regular RRSP contributions to leverage the raised limit effectively.
Contributors are advised to prioritize the First Home Savings Account (FHSA) before RRSPs due to its direct tax advantages and growth potential being tax-sheltered, with withdrawals remaining tax-free if used for purchasing a qualifying home. However, the enhanced HBP limit offers substantial additional incentives for directing excess savings into RRSPs.
Golombek outlined a scenario where substantial sums could be amassed by combining the new HBP limit and maximum FHSA contributions. Over 15 years, with a reasonable return rate, an individual could potentially gather $140,000, a figure that doubles for couples, with each partner able to accumulate the same amount.
The FHSA can remain active for up to 15 years or until the account holder reaches the age of 71, whichever occurs first.
As part of the forthcoming 2024 federal budget to be tabled on April 16, Finance Minister Chrystia Freeland announced that the updated HBP limit would come into effect from the budget day. Existing HBP participants who have reached the prior $35,000 limit could benefit from the increased cap post-budget day.
The HBP scheme allows first-time homebuyers to borrow from their RRSPs to fund a new home purchase or construction without immediate tax implications, provided the funds are utilized by October 1 of the year following the withdrawal.
Under the revised rules, funds withdrawn between January 1, 2022, and December 31, 2025, will benefit from an extended five-year repayment grace period. This adjustment aims to ease financial pressures on new homeowners, allowing them to prioritize mortgage repayments.
In related news, the 2024 budget will also propose introducing a 30-year mortgage amortization period for first-time buyers of newly constructed homes starting August 1. This initiative is intended to make home ownership more accessible to younger Canadians and stimulate housing supply.