Principal Issues: Information requested regarding ministerial discretion which may be exercised to allow HBP withdrawals straddling two calendar years when subsequent withdrawals are made after January of the second year.
Position: General comments.
Reasons: Ministerial discretion is exercised on a case-by-case basis, after a review of all the facts and circumstances surrounding each specific situation.
FINANCIAL STRATEGIES AND INSTRUMENTS ROUNDTABLE 5 OCTOBER 2018
2018 APFF CONFERENCE
Question 8
Home Buyers' Plan and withdrawals in two separate calendar years
The home buyers' plan ("HBP") allows individuals to withdraw money from their Registered Retirement Savings Plan ("RRSP") without being subject to tax thereon, provided that certain specific conditions are satisfied. Most of these conditions are set out in the definition of "regular eligible amount" in subsection 146.01(1) of the Income Tax Act (footnote 1).
In particular, paragraph (h) of that definition requires that the total of the amount and all other eligible amounts received by the individual in the calendar year that includes the particular time not exceed $25,000. Furthermore, paragraph (i) of the same definition provides that the individual’s “HBP balance” (footnote 2) at the beginning of the calendar year that includes the particular time is nil
Certain special rules for an HBP are also provided in subsection 146.01(2). Notably, in paragraph (d), it is stated that an amount received by an individual in a particular calendar year is deemed to have been received by the individual at the end of the preceding calendar year and not at any other time if certain conditions are satisfied. Among other things, the amount must be received in January of the particular year or at such later time as is acceptable to the Minister.
At the 2010 Financial Strategies and Financial Instruments Roundtable, the Department of Finance Canada indicated that, based on their understanding, the CRA was generally flexible in exercising discretion with respect to an HBP withdrawal made after the month of January of the following year. One of the factors considered by the CRA, according to the Department of Finance Canada, was the presence of a sufficiently large RRSP balance as at December 31 of the previous year to support the withdrawal after the month of January.
On the other hand, it is not uncommon, in practice, for a purchase offer to be accepted in the final months of a calendar year, but for the transaction to be notarized sometime in the first six months of the subsequent year. Separate withdrawals under the HBP could therefore be contemplated by a purchaser during this period straddling two calendar years in order to meet certain financial requirements. However, some HBP participants are extremely reluctant and fearful of making withdrawals after January of the subsequent year if withdrawals were made in the previous calendar year, because even if they satisfy the criteria stated at the 2010 Roundtable for the RRSP balance as of December 31, 2010, there is no specific reference to this relief on the CRA's HBP web page. In addition, it is very difficult to know whether or not this will be accepted by the CRA. As a result, people are giving up making withdrawals after January. This is unfortunate because these demanding criteria surrounding the withdrawal period do not reflect what is happening in real life.
Questions to the CRA
a) Given the economic reality surrounding real estate transactions, in the event that the RRSP balance as at December 31, 2017 is sufficient to cover the RRSP withdrawal that occurred after January 2018, will the CRA automatically apply Ministerial discretion under paragraph 146.01(2)(d) for the withdrawal to be deemed to have been made at the end of 2017?
b) If this factor alone is not sufficient, can the CRA clarify which other factors will be taken into account in determining whether or not to exercise that discretion? In such a situation, how can an HBP participant obtain the assurance of not being taxed on withdrawals made after January 2018?
c) Will CRA change its webpage to reflect this possibility?
CRA Response to Question 8(a)
The CRA does not automatically apply Ministerial discretion. The situations provided for in paragraph 146.01(2)(d) are evaluated according to the facts and circumstances of each case. The mere fact that, in the situation described, the RRSP balance at December 31, 2017 is sufficient to cover the RRSP withdrawal made in 2018, at a time that is after January 2018, would not, in itself, be sufficient for that Ministerial discretion to be automatically applied, since only a full examination of the facts and circumstances of a particular situation can permit the exercise of that discretion.
CRA Response to Question 8(b)
In exercising her discretion, the Minister may consider, in addition to the RRSP balance at December 31, 2017, the dates on which the amounts required for withdrawal were contributed and the reasons for the withdrawals being made over a period that straddled two calendar years. However, this is not an exhaustive list. Other factors may be relevant depending on the circumstances. It is further understood that, for an amount to be deemed to have been received at the end of 2017, the other conditions set out in the definitions of "regular eligible amount" or "supplemental eligible amount" in subsection 146.01(1) should be satisfied as provided in subparagraphs 146.01(2)(d)(ii) and (iii). HBP participants who withdraw over more than one year will generally be contacted by the CRA to confirm details of their participation.
To the extent that you are of the view that the reference to January of the year given in subparagraph 146.01(2)(d)(i) is too restrictive and should be replaced by specific conditions, which your questioning seems to suggest, the issue should be brought to the attention of the Department of Finance. The CRA's mandate is to administer the Income Tax Act, while responsibility for the development of tax policies and amendments to the Income Tax Act rests with the Department of Finance. To that end, you may wish to provide that Department with details of the different situations that arise in practice as well as the frequency with which they occur.
CRA Response to Question 8(c)
The CRA will consider the opportunity to modify its HBP webpage to reflect the potential for a taxpayer to request the exercise of Ministerial discretion under subparagraph 146.01(2)(d)(i).
Mélanie Beaulieu
(613)670-8905
5 October 2018
2018-076154
Response prepared in collaboration with:
Devi Naghen
Investment Plans Section
Third Party Reporting Division
Individual Returns Branch
Assessment, Benefit and Service Branch
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 R.S.C., 1985, c. 1 (5th Supp.) (“ITA”)
2 As defined in subsection 146.01(1)