Repaying my Home Owners Plan

Question

I have been adding the annualized amount as part of my income declaration since I started repaying this original home ownership incentive. It was determined to be $897/year for 15 years. Will I have it back in totality, in an RRSP, after it is all paid back?

Answer 1

I am assuming you are Canadian.

Let's say you withdraw $1500 from your RSP (because the math works out well) under the Home Buyer's Plan. You do so in 2015.

You are now required to repay 1/15th each year, which works out to $100. You have two choices. You can repay it into your RSP, or you can just count this as taxable income.

Let's take the first case, as it is the more normal circumstance. Let's say, in 2016, you contribute $1100 to your RSP. On your tax return, you allocate the first $100 as a repayment of your HBP. So, you only get to claim $1000 of your RSP contribution to lower your taxable income. If you do this every year, you end up repaying your HBP. You took a $1500 loan from yourself (well, from your RSP account) and have repaid it in total.

Okay, let's say you don't do that. You don't make any RSP contributions in subsequent years (or you don't allocate any of your RSP contributions to the HBP repayment). Now, each year, you are required to increase your taxable income by $100 and pay tax on that. You were meant to be repaying your loan from yourself, but failed to do so. At the end of 15 years, you've paid tax on the money you borrowed from yourself. You don't owe anything, but you stupidly lost the contribution room in your RSP. You paid a lot in tax, and the government is grudgingly fine with it.