Maximizing Tax Savings While Repaying Your Home Buyers’ Plan

For Canadians planning to buy their first home, the Home Buyers’ Plan (HBP) is a valuable tool. It allows first-time homebuyers to withdraw up to $60,000 from their Registered Retirement Savings Plan (RRSP) to put toward a home purchase without paying taxes on the withdrawal immediately. While this provides short-term financial flexibility, understanding how repayment works is essential for smart long-term planning.

How Repayments to a Home Buyers’ Plan Works

When you withdraw funds under the HBP, you must repay them to your RRSP over a 15-year period. Repayments begin the second year after your withdrawal, and each year you are required to repay 1/15th of the total withdrawn amount. For example, if you withdrew $15,000, your annual repayment would be $1,000.

Temporary HBP Repayment Relief (2022–2025)

First-time homebuyers who made their first Home Buyers’ Plan withdrawal between January 1, 2022, and December 31, 2025 may qualify for temporary repayment relief introduced by the Canada Revenue Agency.

Under this measure, the start of the 15-year repayment period is deferred by an additional three years. Instead of repayments beginning in the second year after withdrawal, repayments begin in the fifth year following the year of the first withdrawal.

Example: If your first HBP withdrawal was made in 2022, your first required repayment year will be 2027, not 2024.

This relief provides added cash-flow flexibility during the early years of homeownership. However, repayment obligations still apply once the deferred period ends, and missed repayments will be included in taxable income if not properly designated on your tax return. Careful coordination with your tax accountant and tax preparation services is essential to avoid unexpected tax impacts.

HBP repayments are made by contributing to your RRSP and designating the contribution as an HBP repayment when you file your tax return. RRSP contributions do not automatically count as repayments. The designated amount is not tax-deductible, but it reduces your HBP balance. If repayments are not properly designated at tax filing, the required amount may be added to your taxable income, increasing your tax bill. Proper coordination with your tax preparation services helps avoid errors and unexpected taxes.

Repayments are not optional. If you miss a yearly payment, the unpaid portion is added to your taxable income for that year at the time your tax return is filed, which could increase your taxes unexpectedly. Proper planning ensures repayments fit into your annual budget while minimizing tax consequences.

HBP Repayment Strategies for Smart Tax Planning

Many taxpayers overlook how strategic HBP repayments can support long-term tax savings. Planning repayments based on your current and future income can help you stay compliant while maximizing the value of your RRSP contributions.

Below are two effective strategies to consider.

Start Repayments Early

You may choose to designate RRSP contributions as HBP repayments before the required repayment period begins.

Why this works:

• RRSP deductions can be carried forward to years when your income is higher.

• Larger tax savings may be achieved at higher tax rates.

• Reducing your HBP balance early makes future tax filings simpler.

Key takeaway:This strategy focuses on timing your RRSP deduction for maximum future benefit while getting ahead on repayments.

Pay More Than the Minimum Required

Once repayments are required, you can designate more than the minimum annual amount toward your HBP.

Why this works:

• Helps pay off your HBP faster if cash flow allows.

• Preserves RRSP deduction room for future years.

• Supports stronger long-term tax and retirement planning.

Key takeaway: This approach prioritizes reducing your HBP balance efficiently while maintaining flexibility as income grows.

How K Liu Accounting Services Inc. Can Help

Navigating the HBP and its repayment requirements can be complicated. At K Liu Accounting Services Inc., we provide trusted tax preparation services and tax accounting services to help you plan ahead. Our team can guide you on repayment schedules, coordinate your RRSP contributions, and ensure you take full advantage of tax-saving opportunities while avoiding surprises.

If you are looking for a tax accountant near you, our experts are ready to support you this tax season. With proper planning, the HBP can help you reach your homeownership goals while keeping your finances on track.

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