Principal Issues: From what time the HBP balance of an individual, repaid during year 202X, will become nil for the purposes of paragraph (i) of the definition of "regular eligible amount" in subsection 146.01(1), for the beginning of the calendar year 202X+1: (a) The day the amount is paid to the RRSP? or (b) the day the repayment is designated in the prescribed form (Schedule 7 of the T1 income tax return) under the HBP?
Position: (b)The day the individual files his T1 income tax return and designates in the prescribed form the amount paid as a repayment under the HBP.
Reasons: Application of subsection 146.01(3) and the definition of "HSB balance" in section 146.01(1).
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 10 OCTOBER 2024
2024 APFF CONFERENCE
Q.11 HBP repayment and Schedule 7 designation
For an individual to be able to make an HBP withdrawal from the individual’s RRSP, one of the conditions that must be met is that the individual’s previous “HBP balance” from participating in the HBP be nil on January 1 of the year of the withdrawal. (footnote 1) See Question 3(c) of Form T1036 (footnote 2).
As part of the Financial Strategies and Instruments Roundtable at the 2022 APFF Conference, a question was asked as to when an HBP repayment could be considered to reset the HBP balance to nil.
In the situation submitted, an RRSP contribution was made in February 2022 and this contribution was designated as an HBP repayment for the year 2021, thus making the HBP balance nil at the end of the 2021 year. The question was whether a withdrawal under a new HBP could be made in January 2022.
In its response published in Technical Interpretation 2022-0938221C6, (footnote 3) the CRA indicated that it was only after the individual had actually contributed amounts to his RRSP, no later than the first 60 days of the year, and had indicated the total amount that had been contributed as an HBP repayment for the previous taxation year on the prescribed form (footnote 4) attached to his income tax return, that the individual could declare the HBP balance to be nil at the beginning of the calendar year.
Thus, in the case submitted, the HBP repayment made in February 2022 could not be taken into account when the withdrawal was made under a new HBP in January 2022.
Following that response, at a meeting of the APFF Liaison Committee with the CRA held in June 2023, a supplementary question was asked to obtain clarification as to the exact date that could be taken into account to consider that an HBP repayment had been made so that the balance on January 1 of the year was nil, so as to be able to participate again in the HBP.
The facts submitted for this second question were as follows:
- An RRSP contribution was made in February 2022;
- the individual's tax return for the 2021 taxation year was filed on March 25, 2022, and the RRSP contribution made in February 2022 was designated as an HBP repayment on Schedule 7 for 2021;
- the Notice of Assessment was issued by CRA on April 18, 2022 indicating a nil HBP balance as at December 31, 2021.
The CRA responded that it was only from March 25, 2022, i.e., the day on which the individual validly filed Schedule 7 with the personal T1 income tax and benefit return for the 2021 taxation year, in which he indicated that he designated the amount contributed to his RRSP as a repayment under the HBP, that he will be able to consider that his HBP balance was nil on January 1, 2022 and that he will therefore be able to participate in the HBP again for the year 2022.
In light of these answers, we would like to submit the following situation to you.
- An individual had an HBP balance in 202X of $5,000;
- He made an RRSP contribution of $5,000 on May 7, 202X, in order to repay his entire HBP balance;
- He filed his 202X income tax return on March 25, 202X+1, designating this contribution as an HBP repayment for 202X on Schedule 7.
Question for the CRA
In such a situation, will the individual be able to participate in the HBP again from January 1, 202X+1, or will he have to wait until March 25, 202X+1, the date on which he files his 202X tax return with Schedule 7, indicating that he is designating the amount contributed to his RRSP for the year 202X as an HBP repayment?
CRA Response
Where an individual receives an amount as a benefit out of or under an RRSP that is an “excluded withdrawal”, as defined in subsection 146.01(1), this amount does not have to be included in computing the individual's income under subsection 146(8).
In the context of the HBP, an excluded withdrawal is a withdrawal that constitutes, among other things, a “regular eligible amount” within the meaning of subsection 146.01(1). Among the conditions for an amount to qualify as a “regular eligible amount” within the meaning of that definition, paragraph (i) requires that the individual's “HBP balance” be nil at the beginning of the calendar year during which the individual receives the amount as a benefit out of or under an RRSP.
According to the definition of “HBP balance” in subsection 146.01(1) and subsection 146.01(3), amounts paid by an individual to an RRSP under which the individual is the annuitant and the total of which is indicated, in accordance with the limits set out in subsection 146.01(3), in a prescribed form (footnote 5) attached to the individual's income tax return, as a repayment for HBP purposes for the preceding year, will be taken into account in determining whether the individual's HBP balance at a given time in the year is nil.
In the situation described, the individual had an HBP balance of $5,000 at the beginning of the year 202X. On May 7, 202X, he contributed $5,000 to his RRSP to make a repayment. On March 25, 202X+1, he filed his income tax return for the year 202X and designated the $5,000 contribution he made during the year 202X, as an HBP repayment, on Schedule 7 of the individual's T1 income tax and benefit return for the year 202X.
Assuming that all other HBP eligibility conditions are satisfied, if the individual wishes to participate in the HBP again in 20XX+1, he will only be able to do so from March 25, 20XX+1, the date on which the individual's tax return for 20XX with Schedule 7 is filed, indicating that he designates the amount contributed to his RRSP in 20XX as a repayment under the HBP. It is only from the time he indicates that the amount paid during the year 202X is a repayment under the HBP, pursuant to subsection 146.01(3), that his HBP balance will be nil at the beginning of calendar year 202X+1, as required by paragraph (i) of the definition of “regular eligible amount”.
Michel Ostiguy
10 October 2024
2024-103106
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 Paragraph (i) of the definition “regular eligible amount” in subsection 146.01(1).
2 CANADA REVENUE AGENCY, Form T1036, “Home Buyers’ Plan (HBP) - Request to Withdraw Funds from an RRSP”.
3 CANADA REVENUE AGENCY, Technical Interpretation 2022-0938221C6, October 7, 2022.
4 CANADA REVENUE AGENCY, Form 5000-S7 Schedule 7 – “RRSP, PRPP and SPP Contributions and Transfers and HBP and LLP Activities – common”, Part B – Repayments under the HBP and the LLP.
5 Schedule 7.