senior couple worrying about their money situation
© Alexander Raths / 123RF Stock Photo

The 2019 federal budget announced an increase to the withdrawal limit for the Home Buyers’ Plan (HBP) to $35,000 from $25,000. The change was met with some skepticism about the increase’s broad benefits. The budget document acknowledged as much, stating that some “initiatives have characteristics that make them more likely to be utilized by higher-income Canadians, such as changes to the Home Buyers’ Plan.”

However, the budget’s other proposed change related to HBP eligibility in the event of a marital breakdown could benefit a wider range of Canadians by removing unnecessary barriers.

Pre-budget rules

Under existing rules, HBP eligibility ultimately boils down to legal title. If both spouses own and occupy the home jointly during their marriage or common-law relationship, neither is eligible to make an HBP withdrawal after marriage breakdown. If only one spouse is on the home’s legal title, that spouse is not considered a first-time homebuyer, but the spouse not on title is still eligible.

The existing rules are restrictive and not many clients qualify for an HBP withdrawal at a life stage where it may help with a fresh start.

Proposed budget rules

The proposed changes would allow former spouses who would not otherwise qualify for the HBP to now be eligible, subject to three conditions:

  1. The client must have been living apart from their spouse or common-law partner due to marriage breakdown for at least 90 days and be living apart when the withdrawal is made. They must have started living apart in the calendar year in which the withdrawal is made or any time in the previous four calendar years.
  2. The client’s principal residence can’t be owned or occupied by a new spouse or common-law partner.
  3. The client’s previous home is either sold or the client has acquired the spouse’s interest by the end of the second calendar year after the HBP withdrawal.

The proposed rules provide an avenue for clients to access their RRSPs via the HBP even if they wouldn’t meet the requirements of an eligible first-time homebuyer.

Further, the HBP withdrawal can be used toward the purchase of a new property or to buy out the spouse and keep the existing home. The current HBP rules will continue to apply to these situations.

The impact

What potential impact could this proposal have? According to the most recent information from Statistics Canada, 11.5% of the Canadian population over the age of 15 was divorced or separated. The age of such individuals has shifted upwards over time such that individuals aged 50 and over represent the largest portion of those divorced or separated, at approximately one in five.

Further, StatsCan data for median retirement assets (e.g., RRSPs, RRIFs, LIRAs, DPSPs, annuities, etc.) show older clients have more assets to apply to the HBP.

Table: Median retirement asset value in 2016

Age Median asset value
Under 35 $10,000
35 to 44 $30,000
45 to 54 $65,000
55 to 64 $90,000
65 and older $93,000

Source: Survey of Financial Security, Statistics Canada

As shown in the table, the traditional first-time homebuyer (under 35) has median RRSP assets materially below the proposed HBP limit of $35,000. The skepticism about the benefits of the increase have some merit as more than half the clients in the age bracket don’t have anywhere near enough assets to maximize the HBP limit (old or new).

However, clients who are separated or divorced tend to be older, with most over 50 years old. Those who meet the new HBP criteria are more likely to have the RRSP assets to use toward either the purchase of a new home or to buy out their spouse from their current home.

The family home is often the most valuable asset, both financially and emotionally, when marriages break down. By removing the existing restriction on the HBP, spouses who are separated may have more flexibility to keep their current homes, or to sell and buy new homes, accessing more of their registered savings to do so. This change may have a positive impact on a broader portion of Canadians than the increase to the withdrawal limit.