Home Buyer Plan is a Canadian government sanctioned program allows first-time home buyers to withdraw up to $35K from their RRSP for down payment. The incentive is that no tax will be withheld at withdrawal. Home buyers have to pay it back within the next 15 years by contributing to their RRSP accounts. When they file income tax return, they should indicate how much RRSP contribute of that year is for HBP payment. The Notice of Assessment of tax return will indicate the remaining balance and the minimum payment required for next tax year. The amount of missing payment will be added to income resulting in additional tax that can be in the thousands. I guessed this serves as penalty.
First, I personally consider this unfair. Missing payments are mostly due to lack of money or financial literacy on how this program works. Tax them more can only lead to more hardship. You might think buying a home indicates financial stability or well-beings. This is really a misconception. Otherwise, the 2008 financial crisis would not have happened. The world is kind of messed up. Someone’s financial situation can deteriorate in a very short period of time when some unfortunate events happen such as illness or economic downturn. Financial literacy is still quite lacking for so many people. Buying a home can brew danger if it is not done properly at the right time. The fast-growing housing price and the slow growth of income make owning a home much more difficult now than before.
Second, some people might not understand this program correctly. They might think they should pay the money back to CRA directly. If CRA says they don’t owe any tax, they assume that they are fine. The only reminder they can get about the HBP payment is the Notice of Assessment. If they don’t file tax return, they won’t receive any communication about it at all. It is very easy to judge others who didn’t file their income tax return. There are many legitimate reasons. They might be under a lot of stress from their personal lives or work. They are so consumed by it that they have no energy or time for anything else. They might be traumatized by their previous accountants who did a very bad job filing their tax returns. They might be hospitalized. They might be homeless. They might have lost all their documents or everything due to a very nasty divorce. They might experience some financial hardship and were afraid that they don’t have money to pay tax. On and on.
Let’s never laugh at others’ missteps. A Cantonese saying has it that nobody prefers to be bald if they can grow hair. There is something called aptitude. Math and finance are two very intimidating subjects for some people. Putting them together are multiplying that fear. Something that seems very easy and natural to some might feel very challenging for others. Some of us are just very lucky while others are not.
My suggestion is that please do seek help from people you trust. Ask for recommendations of professional helps. Please do learn as much financial literacy as you can. Never bury your head in the sand or shoot in the dark.
Worthfy Financial Literacy Counselling 