Home Buyers’ Plan troubles

The Home Buyers’ Plan (HBP) allows first-time home buyers to withdraw up to $25,000 from their RRSPs to assist them with the purchase of a home. The funds need to be paid back over a 15-year period. If payment is missed in a particular year, the amount not repaid must be included in the participant’s income for that year.

While the rules seem pretty straightforward, the HBP was the subject of two separate Tax Court decisions this past fall, which illustrates that sometimes plan participants don’t understand how the rules work.

Ho v. The Queen (2010 TCC 571)

The first case involved Karen Ka Yan Ho, who withdrew $13,854 from her RRSP in 2008 under what she thought was her participation in the HBP. However, Ho ended up having to include the amount in her 2008 income as an RRSP withdrawal.

Ho’s home purchase began on July 24, 2005, when she entered into a Purchase Agreement to acquire a new condo in Toronto that was being constructed with an expected occupancy date that was at least three years away.

The Agreement required her to make a series of payments to the developer. As a result, one year later, on July 24, 2006, she withdrew the entire balance in her RRSP account, which at the time was $6,146, under the HBP to fund a portion of the deposit.

Ho made additional RRSP contributions after this point so that by the closing date, which occurred in December 2008, she had sufficient funds to withdraw a further $13,854 from her RRSP. Combined with the $6,146 previously withdrawn in 2006, her total withdrawals were $20,000 which was the maximum permitted HBP withdrawal limit for the year. (The 2009 federal budget increased the limit to $25,000.)

The problem was that the $13,845 Ho withdrew from her RRSP in 2008 was not a proper withdrawal under the HBP because it was done too late.

Under the HBP withdrawal rules, you can certainly make more than one withdrawal as long as the total of your withdrawals is not more than the maximum dollar limit and you receive all withdrawals in the same calendar year. (An exception is made if you receive a withdrawal in one year and another in January of the following year.)

Ho argued that “the reality of today’s world is that new construction will always require a series of deposits over a period of time. The provisions of the legislation with respect to the HBP, as it now exists, is contrary to the underlying spirit of this program which is to financially assist first-time home buyers with home ownership. It is illogical that all withdrawals must be made during the same year.”

Ho felt that she shouldn’t be penalized for her participation in the program over a number of years and felt that not only should her second withdrawal be allowed to qualify under the HBP but that “the legislation be amended to reflect the most common circumstances encountered when purchasing a home.”

Unfortunately, there wasn’t much the Judge could do as the rules governing participation in the HBP are black and white. As the Judge wrote, “This Court does not have the jurisdiction to amend the legislation; that remedy lies with Parliament.”

Javor v The Queen (2010 TCC 578)

The second case involved Marian Javor, who was reassessed by the CRA for his 2003, 2004, and 2006 taxation years for not including $536 in his income for each of these three years as was required under the terms of his previous participation in the HBP.

He was also assessed late filing penalties for each of these three years since he did not file tax returns.

Javor testified that in 1997 he withdrew about $8,050 from his RRSP under the terms of the HBP and used the money to purchase a home. Javor neither made the necessary annual repayments to his RRSP account in the 2003, 2004, and 2006 taxation years nor filed-income tax returns for those years.

He argued that no amount should be included in his income in respect of the HBP “since he did not realize any benefits in respect of the home in the relevant taxation years…all of the benefits were realized by his former spouse,” who presumably occupied the home after his separation.

This was Javor’s second time in Tax Court after having unsuccessfully argued the same position in a 2005 case in which he testified that “due to the matrimonial dispute, he ultimately did not get the benefit of the RRSP withdrawal – his wife did.”

For the current trial, Javor tried to subpoena both his former spouse and the Treasurer of the Law Society to attend in Tax Court, but the Judge quashed both subpoenas, the former due to a restraining order against Javor and the latter “on the basis that [the Treasurer] could contribute no relevant evidence to the case.”

Not surprisingly, the Judge upheld CRA’s assessment and the penalties, finding that the Income Tax Act simply brings amounts not repaid under the HBP into income based on a formula and the Act “does not make any mention of benefit…The issue of benefit is not relevant.”

Jamie Golombek

Tax & Estate

Managing Director, Tax and Estate Planning, CIBC Private Wealth Team Jamie Golombek is Managing Director, Tax and Estate Planning with CIBC in Toronto. As a member of the CIBC Private Wealth team, Jamie works closely with advisors from across CIBC to support their clients and deliver integrated financial planning and strong advisory solutions. He joined the firm in 2008 after 12 years with a global investment company, where he was involved in both internal and external consulting on all areas of taxation and estate planning. Jamie has also worked for Deloitte as a tax specialist in the Toronto office, where he specialized in both personal and corporate tax planning. Jamie is quoted frequently in the national media as an expert on taxation. He writes a weekly column called “Tax Expert,” in the National Post, has appeared as a guest on BNN, CTV News, and The National, and for several years was a regular personal finance guest on The Marilyn Denis Show. He received his B.Com. from McGill University, earned his CPA designation in Ontario and qualified as a US CPA in Illinois. He has also obtained his Certified Financial Planning (CFP) and Chartered Life Underwriting (CLU) designations. In 2023, Jamie was named a CPA Ontario Fellow. The FCPA is the highest distinction that can be bestowed upon a CPA who brings distinction to themselves and to their profession through leadership and achievement in their professional, community or personal lives. Jamie is a past chair of the Investment Funds Institute of Canada’s Tax Working Group. He is also a member of CPA Ontario, the Illinois CPA Society, the Estate Planning Council of Toronto, the Canadian Tax Foundation and the Society of Trust and Estate Practitioners. For nearly two decades, Jamie taught an MBA course in Personal Finance at the Schulich School of Business at York University in Toronto.