Should you use the RRSP Home Buyers’ Plan on a mixed-use property?

What home-buying programs are available?

Until recently, the Home Buyers’ Plan (HBP) was one of the few programs available to assist Canadians with saving for a home. Through the HBP, you can withdraw up to $35,000 from your registered retirement savings plan (RRSP) with no initial tax consequences, but this amount must be repaid within 15 years, beginning in the second calendar year after the year of withdrawal, to remain tax-free. For example, if you withdraw funds from your RRSP to buy a home in 2023, you must start repaying the money in 2025 and finish repaying it by the end of 2040.

But there is now another option. On April 1, 2023, the federal government introduced the first home savings account (FHSA). The FHSA is a registered investment account that allows qualifying Canadians to contribute up to $8,000 per year, to a lifetime maximum contribution limit of $40,000, to purchase their first home. Think of this account as a hybrid of a tax-free savings account (TFSA) and an RRSP, as it holds some properties of both.

The great news is that Canadians can now take advantage of both programs, which together can provide you with up to $75,000 (or a combined $150,000 for couples) to put toward your first home.

Who qualifies as a first-time home buyer for the HBP?

You are considered a first-time home buyer if you have not occupied a home that you own, or that your spouse or common-law partner owned, in the four calendar years prior to the year in which you are making a withdrawal.

Many folks are under the impression that they can only participate in the HBP once, but you may be able to requalify if you sell a property and wait the four-year period before getting back into the market.

Definition of a qualifying home: Does it include commercial properties?

The Canada Revenue Agency (CRA) considers a qualifying home to be a housing unit, either existing or to be constructed, located in Canada. This can include:

• Single-family homes
• Semi-detached homes
• Townhouses
• Mobile homes
• Condominium units
• Apartments in duplexes, triplexes, fourplexes or apartment buildings
• A co-operative housing corporation that entitles you to possess and have an equity interest in a housing unit

A fully commercial property is not considered a housing unit, and therefore would not be considered a qualifying home, according to the CRA’s rules. However, the fact that you will pay residential property taxes for a portion of your property implies that it is a housing unit that meets one of the definitions listed above. Assuming you intend to occupy it as your principal residence within a year of buying, you are eligible to participate in the HBP. As a first-time home buyer, you could also use the FHSA, as both programs share the same eligibility criteria.

Consider using both the HBP and FHSA

The FHSA provides the benefit of not needing to repay the funds you withdraw, while also offering a tax deduction on all contributions. Additionally, if you end up not purchasing a home, you can either close your FHSA and report the withdrawal on your income tax return, or you can transfer the funds from your FHSA to your RRSP without affecting your RRSP contribution limit. The features of the FHSA provide more flexibility than the HBP if your plans change. But if you hope to buy a home in the near future and you’ve saved a large portion of your down payment within your RRSP already, you’ll likely need to use both plans to have a reasonable down payment, as you won’t have enough contribution room within your FHSA yet.

Luckily, you can take advantage of both plans by transferring funds from your RRSP to your FHSA on a tax-free basis, up to the FHSA contribution limit. You won’t be able to claim another tax deduction for the transfer (since you already claimed it when you initially contributed to your RRSP), but you also won’t need to repay the funds. As such, withdrawing what you can up to the annual FHSA limit first, and then taking the remainder as an HBP withdrawal, would provide you with the most flexibility in this scenario.

With the ability to take advantage of both programs, you have options depending on your situation. Ultimately, it’s always best to speak with a Certified Financial Planner (CFP) or Qualified Associate Financial Planner (QAFP) to ensure the path you take is most suitable for you.  

Read more from Ask a Planner:

• Can you use the Home Buyers’ Plan to buy a foreign property?
• What expenses can you deduct when renovating a rental property?
• Can you save tax by moving into your rental property?
• Should you claim the principal residence exemption on a property you bought your child?

About Meghan MacPherson, QAFP

Meghan MacPherson is a QAFP with Impact Financial Group in St. Catharines, Ont. She specializes in financial planning for young professionals and families by focusing on providing financial education, clarity and tailored advice to help take the worry out of money.