HBP (Home Buyers Plan)

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Greg
Posts: 106
Joined: Tue Nov 09, 2004 3:38 pm

HBP (Home Buyers Plan)

Post by Greg »

Background: I live in Canada; work in the US (Permanent Resident Commuter). Took out 12,000cdn from RRSP in 2004 under home buyers plan. Filed tax forms with the IRS 1040, 8891, and 8833 to exempt the 12,000cdn form taxes.

My first installment payment is due under the Home Buyers plan for tax year 2006. If I elect to add the 1/15 (800.00cdn) to my Canadian tax return as income instead of contributing back into my RSP would this 800.00cdn amount be taxable on my 1040?.

Thanks
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

This Q has coe up before.

First off, the fact that it was not taxable in Canada when you took it out of your RRSP made it non-taxable on your 1040. This is by treaty, and you were correct to use 8833 to identify this. Form 8891 had nothing to do with this aspect.

Now, in subsequent years, is and when any of these payments are missed, the income is added to your Cdn return. However, this income does not meet any of the definitions of income on 1040, and thus should not the reported as income on 1040.

The same would be true, if at some point in the near future you would move to US. Your HBP acount would immediately become payable and due, or the remaining balance would be added to your final Cdn departure return.
Again, this imputed income hardly fits any IRS definition of income, and would not be reported.

Of course, this does nothing to save you any tax, since you would be paying full Cdn/prov tax on this non-repayment.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Greg
Posts: 106
Joined: Tue Nov 09, 2004 3:38 pm

Post by Greg »

Thanks Nelsona your are correct the Q did come before and I found it with the search :oops: sorry for the repeat questions.
Greg
Posts: 106
Joined: Tue Nov 09, 2004 3:38 pm

Post by Greg »

I asked this same question of David ingram also and here is his reply.


david ingram replies:

Not specifically. However, any increase in value of the plan between
Dec 31st 2005 and Dec 31 2006 "is" taxable on Schedule B of your US return
unless you fill in US form 8891.

The penalty for not reporting the RRSP to the US IRS on form 8891 and
the Department of the Treasury on form TDF 90-22.1 is up to $500,000 plus
five years in jail plus 35% of the amount in the RRSP Plus 5% per year for
every year you fail to report it.

See here for the TDF 90-22.1

Read the fine print at the bottom of form TD F 90-22.1
http://www.irs.gov/pub/irs-fill/f9022-1.pdf

Since part of the $800 DOES represent withdrawn money, some or all will
be taxable and can NOT be exempted on form 8891 because you have now
officially withdrawn the money. Remember, for US purposes, it is the interest
portion that is taxable, NOT the principal. However, if the earnings were more
than $800, you would be reporting the total, say $1,100 and exempting the
excess over $800 on form 8891 and claiming a foreign tax credit on the US
return for the tax paid to Canada on the $800.00.
--------------------------------------
Hope this helps
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

David is incorrect on this one, since he forgets the treaty provision. Note he does echo what I said about 8891 having nothing to do with this.


In the long run, your taxable portion in US will be tha same as it would have been had you not got into an HBP. This is perhaps what he is meaning (in ther words, more of what is left in your RRSP becomes taxble whenn that is withdrawn -- you 'cost of investment' goes down)

But, on the matter of the HBP withdrawal, and any subsequent paybacks, or non-repayments, my treatment outlined above is correct. Look at my example of non-repayment in the year of emigration: it is impossible for the IRS to consider this 'income'.


Remember, if you withdraw pension money in one country which is not considered income in that country, the other counrty CANNOT make you include it in income.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nicksarwin07
Posts: 1
Joined: Thu Aug 01, 2019 5:21 pm

Re: HBP (Home Buyers Plan)

Post by nicksarwin07 »

HI there,

Repayments do not affect your RRSP deduction limit. you can still contribute to your RRSP or PRPP and designate that amount as a repayment under the HBP. you have 15 years to repay withdrawals made from your RRSPs under the HBP.
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