Using the Home Buyers' Plan (HBP)

In addition to taking advantage of the new First Home Savings Account (FHSA), individuals saving for a first home can access money in their RRSP through the use of the Home Buyers' Plan (HBP).

You can model the use of the HBP or repayment of the money back to the RRSP in Snap through the following steps.

A withdrawal made from an RRSP using the HBP does not count towards the client's Taxable Income. To model this in Snap you can enter a standard RRSP Withdrawal on the Planning page. This Withdrawal will be considered Taxable Income to the client.

Then, to offset the Taxable Income created by the Withdrawal, you will enter a Tax Deduction on the Scenario Setup -> Income Taxes page for the year of the Withdrawal. You will enter a 0% Indexing Rate so that the exact amount of the Withdrawal is applied in the future year. Then you can enter the age of the client for the year of the Withdrawal in the From Age and To Age fields.

This will result in the HBP Withdrawal having no impact on the client's Taxable Income and Total Tax values.

The first step to model repayment of the HBP in Snap is to add the total amount owing on the HBP to the client's RRSP Contribution Room. This can be done on the Scenario Setup -> Assets -> RRSP/RRIF page.

For instance, if the client has $19,000 of Contribution Room available, and owes $35,000 to the HBP, you can enter their total Contribution Room as $54,000. This way, Snap will not impact their available room when you are repaying the HBP.

The next step is to enter the planned repayment amounts as Contributions on the Planning page.

These Contributions will create a Tax Deduction by default and reduce the client's Taxable Income. To offset this, you will need to follow the steps below for consistent annual repayment if the client is repaying the same amount each year, or inconsistent annual repayment if the client is repaying different amounts each year.

If you are modelling the consistent repayment of the HBP in Snap, you can use a similar approach to adjust the tax calculations to the Withdrawal method outlined in Step 1 above.

On the Scenario Setup -> Income Taxes page, you can enter a Tax Benefit for the amount that the client is repaying to the HBP each year. For instance, if they are repaying $5,000 for 7 years from age 37 to 43, you would enter this as a Tax Benefit of $5,000 with a 0% Indexing Rate with a From Age of 37 and To Age of 43.

This will result in the HBP repayment having no impact on the client's Taxable Income and Total Tax values.

If the client is making additional Contributions to the RRSP on top of the HBP repayment amounts, you can model this by increasing the Contribution on the Planning page while leaving the Tax Benefits amount equal to the HBP repayment amount.

If you are modelling inconsistent repayment of the HBP in Snap (for instance repaying $15,000 in one year, followed by $7,000 the next and then $13,000 the following year), you can use a combination of Taxable and Non-Taxable Incomes to offset the Tax Deduction created from the RRSP Contributions.

We can offset the tax impacts of the RRSP Contributions by adding two new Incomes on the Scenario Setup -> Incomes page.

We will add a Taxable income with the Amount of $0 and Indexing of 0% to offset the reduction in Taxable Income from the Contributions and a Non-Taxable income to help us control the total cash flow in the projection.

On the Planning page, you can enter the HBP repayment amount as a positive value in the Taxable Income column and as a negative value in the Non-Taxable Income column. This will result in the HBP repayment having no impact on the client's Taxable Income and Total Tax values.

This does require a fair bit of manipulation. One thing to note is that if automatic Cash Flow Management (CFM) is turned off during these years (where you do not have to enter the Base Expenses for the client) you may not want to go to this effort. As long as you are tracking the Contributions to the RRSP, the projection will be accurate for all future cash flow and tax considerations once the HBP is finished being modelled.

If you require the use of the Tax Benefits or Tax Deductions settings for other purposes in your projection, for instance, your client has a company-paid car that counts as a Tax Benefit, or the client has child care expenses that provide a Tax Deduction you can use the same approach outlined in the inconsistent annual repayment in Step 4 above to use Taxable and Non-Taxable Incomes to offset the tax considerations of the RRSP Withdrawals and Contributions. This way, you can use the Scenario Setup -> Income Taxes page inputs for your client's other Tax Benefits and/or Tax Deductions.

In this case, instead of using the Scenario Setup -> Income Taxes page, you can use the two new incomes for both the Withdrawal from the RRSP and the Contributions. To offset the initial Withdrawal, you would enter a negative Taxable Income and a positive Non-Taxable Income for the same amount.