Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Can an individual's HBP balance be extinguished when the individual declares bankruptcy?
Reasons: The individual still has to make the annual repayment to his or her RRSP until all amounts withdrawn are repaid. If the required repayment is not made for a year, it will have to be included in the individual's income for that year. There is nothing in the legislation to allow a bankrupt individual to extinguish his or her HBP balance.
April 8, 2010
Dear XXXXXXXXXX :
Re: Home Buyers' Plan and Bankruptcy
This is in reply to your letter dated April 16, 2009, wherein you requested our views on the Home Buyers' Plan ("HBP") as it relates to your particular situation.
You advise that in XXXXXXXXXX you purchased a house using $XXXXXXXXXX from your registered retirement savings plan ("RRSP") under the HBP. On XXXXXXXXXX , you declared bankruptcy and, as part of the bankruptcy process, your interest in the property was sold by the trustee later that year. You believe that your HBP balance as of XXXXXXXXXX should be reduced to zero since you declared bankruptcy on that date and you no longer own the property. If this is not permissible, you ask that you be allowed to report the HBP balance in your pre-bankruptcy income tax return.
Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Ruling, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.
The HBP allows an individual to withdraw funds from an RRSP to buy or build a qualifying home. Withdrawals that meet all applicable HBP conditions do not have to be included in the individual's income, and the individual's RRSP issuer will not withhold tax on these amounts. Under the HBP, the individual has to repay all withdrawals to his or her RRSP within a period of no more than 15 years. If the individual does not repay the minimum amount for a particular year, such amount will be included in the individual's income for that year.
In the situation described, it is our view that a withdrawal from an RRSP under the HBP is not a debt for purposes of the Bankruptcy and Insolvency Act. Consequently, as noted in Guide RC4135, Home Buyers' Plan (HBP), even if an individual declares bankruptcy, the individual still has to make the annual repayment to his or her RRSP for each year remaining in the individual's HBP participation period, until amounts withdrawn under the HBP are repaid. As stated above, if the required repayment for a year is not made, it will have to be included in income for that year. We note that there is no provision in the Income Tax Act to permit a bankrupt individual to reduce his or her HBP balance to zero or to include such balance as income in the individual's pre-bankruptcy income tax return.
We trust that our comments are of assistance.
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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