Canadian Court Ruling Expands Flexibility for RRSP Withdrawals Under Home Buyers' Plan (HBP)

Canadian Court Ruling Grants Home Buyers Greater Flexibility With RRSP Withdrawals Under HBP

A recent federal court decision has ruled against the Canada Revenue Agency (CRA), affirming that Canadians using the Home Buyers’ Plan (HBP) to withdraw funds from their Registered Retirement Savings Plan (RRSP) for a home purchase have greater flexibility than the CRA previously allowed.

The case involved a couple who entered into a pre-construction home purchase agreement in December 2020. Due to delays from the developer, they were only able to move into the home in 2023. The couple made their first HBP withdrawals in 2021 and followed up with additional withdrawals in 2022.

Under standard HBP rules, all qualifying withdrawals must be made within the same calendar year. However, Canada’s Income Tax Act includes a special deeming rule, which allows withdrawals made in January (or later if CRA accepts) to be treated as if they occurred on December 31 of the previous year. This provision is designed to accommodate home purchases that straddle calendar years.

The CRA rejected the couple’s second set of withdrawals, arguing that their RRSP balances as of December 31, 2021, were insufficient to support the deduction. But the court disagreed, ruling that the deeming provision is a legal fiction not bound by actual RRSP balances at year-end. Since CRA did not dispute the timing of the transactions, the judge ruled in the taxpayers’ favour.

What This Means for First-Time Home Buyers

This decision could have broader implications for Canadians leveraging the HBP program. The ruling clarifies that HBP withdrawals straddling two years may still qualify under the deeming rule, even if RRSP funds weren’t present at the prior year-end, offering more flexibility than CRA’s traditional interpretation.

For those preparing to buy a first home, Canada offers three main tax-advantaged savings vehicles to help fund a down payment:

1. First Home Savings Account (FHSA)

Launched in 2023, the FHSA allows first-time buyers to contribute up to $8,000 annually, with a lifetime cap of $40,000. It combines the tax-deductibility of RRSPs with the tax-free withdrawals of TFSAs, as long as the funds are used for a qualifying home purchase. The account can be held for up to 15 years or until the end of the year the holder turns 71. Unused balances can be rolled into an RRSP or RRIF tax-free.

2. Tax-Free Savings Account (TFSA)

The TFSA is another powerful tool. As of 2025, the annual contribution limit is $7,000, with cumulative limits reaching $102,000 depending on age and residency. TFSA funds can be withdrawn tax-free at any time and re-contributed in future years.

3. Home Buyers’ Plan (HBP)

The HBP permits withdrawals of up to $60,000 per eligible individual from their RRSP to buy or build a first home. Withdrawn amounts must be repaid over 15 years, starting in the second year after the withdrawal. To qualify, RRSP contributions must remain in the account for at least 90 days before withdrawal.

Why It Matters

With home prices and borrowing costs remaining high, strategically combining FHSA, TFSA, and HBP can make homeownership more achievable. The recent court ruling also offers new clarity on how HBP timing rules apply, giving Canadians more confidence and flexibility when navigating the home-buying process.

Resources: HBP plan