# Paying back HBP (Home Buyer's Plan)



## hedgehog12 (Feb 28, 2011)

Hi everyone,

I have a quick question about the HBP
(Home Buyer's Program)

I took out $23k from my RRSPs to for the HBP towards a down payment for a house last year

I have 2 questions:

1) When I buy my RRSP's every year, is this automatically counted towards paying back my HBP?
I just bought $4000 of RRSPs in 2014 (4 months ago). How come Revenue Agency sent me a letter this month saying I still owe $23,000??

2)Suppose I buy $5000 for my RRSPs next year. Does my (2015) HBP owing automatically decrease to $18,000?

Or, do I not only have to set aside $5000 to buy RRSPs, I have to set aside an additional $5000 in order to pay down my HBP?

3) If I hire an accountant, do I have to tell them during tax season part of my RRSP's is for repaying my HBP?

Thanks!!!


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## jcgd (Oct 30, 2011)

You don't exactly buy RRSPs. It's an account like your checking or savings account. When you deposit money to your rrsp account it sits there as cash unless you buy something with it such as a GIC, Mutual fund or individual stock. 

When you do your taxes you must specify how much of your contribution that year will be used to repay the Home Buyer's loan or be used for deductions.

Paying back your withdrawals:
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/rpymnts/menu-eng.html

Home Buyers Plan
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html


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## doctrine (Sep 30, 2011)

The difference is you have to declare it on your taxes, and the amount that you declare will not be tax deductible, unlike your general RRSP contributions. So, if you buy $5k of RRSPs next year, and declare $5k towards your HBP, then yes your balance will go down to $18k. But you will not have a $5k deduction. You will have to declare at least 1/15th or $1533.33 per year or you'll be taxed on it automatically.

And yes, if you hire an accountant, they will be able to figure it out. I think, generally, it makes sense to take as long as possible to pay it back as long as you're working.


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## stardancer (Apr 26, 2009)

Each tax year, you must let CRA know how much you have contributed to your RSP and out of that contribution, how much is a new contribution and how much is an HBP payback on a schedule 7. The split is up to you. As noted above, the part that is a payback is not deductible, so you have to play around with what split is good for you that year, as long as you make the minimum payback (1/15th of your HBP balance)

Example:
you contribute $5000 in total

on schedule 7, you designate 2000 as a contribution and 3000 as an HBP payback.
you will get a deduction for 2000 on line 208
the 3000 amount on line 246 of schedule 7 is not deductible as it is a loan repayment.

If you do not designate an amount, the minimum amount (1/15th) will automatically be considered income and you will be taxed on that amount.

http://recherche-search.gc.ca/rGs/s...a&st=s&num=10&st1rt=0&gcwu-srch-submit=Search


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## Eclectic12 (Oct 20, 2010)

hedgehog12 said:


> .... 1) When I buy my RRSP's every year, is this automatically counted towards paying back my HBP?
> I just bought $4000 of RRSPs in 2014 (4 months ago). How come Revenue Agency sent me a letter this month saying I still owe $23,000??


No ... you have to use schedule 7, line 246 on your tax return to let CRA know what portion of the RRSP contribution is for repayment.
You don't seem to be aware of this so I'm pretty sure you haven't repaid anything. It makes sense then that CRA says you owe the full amount.


Note that CRA says:


> Your repayment period starts the second year following the year you made your withdrawals.


Since your withdrawal was in 2013, the first repayment should be in 2015 and designated when you file your tax return in early 2016. You can start repaying earlier if you like.




hedgehog12 said:


> .... 2)Suppose I buy $5000 for my RRSPs next year.
> Does my (2015) HBP owing automatically decrease to $18,000?


It is not automatic ... the way the amount owed with decrease is as you file tax returns with amounts for repayment designated on schedule 7.




hedgehog12 said:


> ... Or, do I not only have to set aside $5000 to buy RRSPs, I have to set aside an additional $5000 in order to pay down my HBP?


Depends ... if you want to deduct $5K from income *and* pay off $5k from the HBP, then you would have to contribute $10K where $5K is designated for HBP repayment.

Alternately, if you want to deduct $4K and repay $2K, you need to contribute to your RRSP $6 then fill out schedule 7 to reflect this.

The choice is up to you.




hedgehog12 said:


> ... 3) If I hire an accountant, do I have to tell them during tax season part of my RRSP's is for repaying my HBP?


It will only matter when the accountant is filling out your tax return. It's probably better to discuss this earlier in the year but as long as the tax return filed the following year is correct, that is all that is needed.


Cheers


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## MoneyGal (Apr 24, 2009)

doctrine said:


> The difference is you have to declare it on your taxes, and the amount that you declare will not be tax deductible, unlike your general RRSP contributions. So, if you buy $5k of RRSPs next year, and declare $5k towards your HBP, then yes your balance will go down to $18k. But you will not have a $5k deduction. You will have to declare at least 1/15th or $1533.33 per year or you'll be taxed on it automatically.
> 
> And yes, if you hire an accountant, they will be able to figure it out. *I think, generally, it makes sense to take as long as possible to pay it back as long as you're working*.


What's the logic for this? There's no benefit to repaying and there could be a "penalty" in the sense that the funds are out of your account / not earning.


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## Spudd (Oct 11, 2011)

I think if you cannot afford to max out your RRSP, then it makes sense to do the minimum repayments so that you pay less tax. However, if you are able to max it out, then repaying the HBP allows you to put more money into the RRSP sooner, and is a good idea.


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## doctrine (Sep 30, 2011)

They're not earning money, but you also don't receive tax deferred growth anymore on those funds. Just about any other use of the money (TFSA, non-registered investments, paying down debt) will now have a better return.


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## nobleea (Oct 11, 2013)

Depends on whether the money you withdrew was actually your RRSP money, or whether you just borrowed the money, contributed it, withdrew and repaid the loan in order to get the tax refund. That's what most first timers seem to do. The extra 6-8K is enough to make things work.


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## Eclectic12 (Oct 20, 2010)

MoneyGal said:


> doctrine said:
> 
> 
> > I think, generally, it makes sense to take as long as possible to pay it back as long as you're working.
> ...


I was wondering as well.

The one rationale that sort of lines up with this statement is that if one has the cash flow and is in a situation that a bigger deduction against income is of benefit - in that case allocating more to the RRSP contribution is deductible against income may be of help (or could generate a refund).

For example, if one had a extra bonus/overtime that was taxed more heavily than usual - allocating the least amount for that year to repayment could result in a better than usual refund. The refund could then be used to help repay more of the HBP. 




MoneyGal said:


> There's no benefit to repaying and there could be a "penalty" in the sense that the funds are out of your account / not earning.


Hmmm ... maybe a typo?

As written - there seems to be a conflict between "no benefit to repaying" and "penalty for not earning". IMO, avoiding a penalty is a benefit.

Perhaps you meant you didn't see a benefit to *delaying* repayment?


Cheers


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## Eclectic12 (Oct 20, 2010)

doctrine said:


> They're not earning money, but you also don't receive tax deferred growth anymore on those funds.


Yes ... though by repaying the HBP, the repayment funds will resume the tax deferred growth. 
So I'd rate the "not earning" as a bigger factor.




doctrine said:


> ... Just about any other use of the money (TFSA, non-registered investments, paying down debt) will now have a better return.


The TFSA part, I can understand as it is tax free (plus income can be withdrawn to make the minimum HBP payments without a taxable event).

The "non-registered" and "paying down debt" is going to be a YMMV situation, I'd expect.

The "non-registered" is likely increasing the taxes due so I'd want a good return to make it worth delaying the HBP repayment so that the tax deferred growth is resumed. Also - if the same investment is available in a registered account, there would have to be an overriding factor before I'd prefer paying taxes today and/or in the short term that could be avoided completely or deferred.

For the "paying down debt" ... I'm not sure I'd prefer paying off a 1% car loan versus other investments in a registered account.


Cheers


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## doctrine (Sep 30, 2011)

While it resumes tax deferred growth, its being re-contributed with post-tax money. Therefore, one of the biggest advantages has been taken away for those specific funds. A TFSA is clearly a better alternative, and non-registered assets could be anywhere from nearly as good (for lower income) to very similar to a HBP repayment at higher incomes. Agreed that 1% debt wouldn't be a great alternative. Generally speaking though, for me, I'd rather have the assets outside the RRSP if there isn't a big difference.

You could make an argument that it's better to lock the payments back into the RRSP for a measure of 'safety' from impulse decisions and focuses you on long term planning. Other than that, and the idea that maybe people should accelerate debt payments (again, perhaps, to save themselves from themselves), I am comfortable with my personal debts and I'd be happy to delay payments for the entire 15 years. I don't see the mathematical advantage that you have with the original RRSP deductions - happy to see alternative arguments on that basis though if anyone has one.


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## Spudd (Oct 11, 2011)

I agree the TFSA would be better, but I can't see how non-registered would be unless you were in the income range where dividends are actually negatively taxed. Any income received in a taxable account would be taxed, while in the RRSP it's allowed to grow tax free, until you withdraw it at a lower bracket later in life.


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## MoneyGal (Apr 24, 2009)

Eclectic12 said:


> I was wondering as well.
> 
> The one rationale that sort of lines up with this statement is that if one has the cash flow and is in a situation that a bigger deduction against income is of benefit - in that case allocating more to the RRSP contribution is deductible against income may be of help (or could generate a refund).
> 
> ...


Indeed I did!


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## christinad (Apr 30, 2013)

Personally, I aim to pay back the HBP in 4 years. I feel like it is something hanging over my head and i'll feel good to get it paid off. I can deposit my maximum rssp amount though.


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## Xiaobo.Yann (Oct 28, 2014)

*Taxable for repayment HBP*



stardancer said:


> Each tax year, you must let CRA know how much you have contributed to your RSP and out of that contribution, how much is a new contribution and how much is an HBP payback on a schedule 7. The split is up to you. As noted above, the part that is a payback is not deductible, so you have to play around with what split is good for you that year, as long as you make the minimum payback (1/15th of your HBP balance)
> 
> Example:
> you contribute $5000 in total
> ...


Hello,
based on this scenario, which means the designated 2000 of repayment HBP is taxable, because we have to deduct this amount from line 208 when we fill the tax return, am I correct?

Further, does this particular 2000 in RRSP need to be taxed again when I withdraw later years like retired or the years with lower income?

Thanks,


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