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If you miss one multiple times, it can get costly
Q: I didn’t repay one payment of my Home Buyers’ Plan a couple of years ago and I realized that it would get added to my income, but does the payment still exist? In other words, there are 15 payments regardless of whether or not a payment was missed and income tax was paid on that 1/15th payment. I still ended up owing that payment in the end. Sounds a little fishy to me! Can you clarify?
—Bill C.
A: Bill, this is a common question around the often confusing repayment conditions of the Home Buyers’ Plan (HBP).
Here is a simple explanation of how the repayment process works for the HBP. The repayment amount is divided over 15 years. And each year you choose whether to repay the annual amount to your RRSP or not. If you don’t repay the expected amount, then the government will treat the amount as income for that year and tax you on it. The following year you make the decision again and the calendar continues to count down regardless of a repayment or not.
What this means is that you will end up taking a tax hit on the HBP payment amount you did not repay each year, depending on your tax bracket that year. And depending on the amount owed annually, and the tax bracket you’re in that year, it can mean paying several hundred dollars more in taxes that year. So, it can get costly.
To find out your total outstanding HBP repayment balance at any time, check your Notice of Assessment from the Canada Revenue Agency (CRA). You will get this Assessment either through the mail or through your “My CRA” online account if you’ve set one up for yourself.
Janet Gray, Ottawa-based fee-for-service financial planner and money coach
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Thank you for this article. I have a clarification question. If I decide not to pay back my HBP, every year, the required minimum payment will be added to my annual income and will be taxed accordingly (as if my salary was that much higher). Right? I wonder if I have to pay withholding tax as well.
Response from the MoneySense editorial team:
Hi Jennifer, thanks for the question.
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
To Samuel Kavanagh and the MoneySense editorial team: Your response to Jennifer is ridiculous. In the time it took you to type a message saying you would not help her, you could have typed
an answer. Then others who read the same question months later, like me in January 2021, would benefit from your answer to her question, instead of your lame excuse to solicit business. Jennifer’s question is easy to answer. No need to be a financial advisor to tell her that: 1. Yes, the payment is added to her income and taxed and 2. There is no withholding tax. You are charged withholding tax when you cash an RRSP that is not protected by a program like the HBP. the tax withheld is only an estimate of the amount of tax you will have to pay when the RRSP income is added to your other income. In this case, you are adding the RRSP income directly to your tax return and calculating the total tax payable. See how easy that was Samuel? Please consider your entire audience in the future when you make irrelevant comments.