Can You Use the Home Buyers’ Plan to Buy Property Abroad?

Using the Home Buyers’ Plan to buy property in another country

If you are asking about a tax-free RRSP withdrawal, Andy, you are likely referring to the Home Buyers’ Plan (HBP). The HBP allows qualifying first-time home buyers to withdraw funds from their registered retirement savings plan (RRSP) without immediate taxation, but there are important limits and location rules to understand.

Under the current HBP rules, an individual may withdraw up to $60,000 from their RRSP to buy or build a qualifying home. Spouses or common-law partners can each withdraw up to $60,000, for a combined total of $120,000 in many cases. (This replaces the previous per-person limit of $35,000 that applied prior to April 16, 2024.)

To qualify as a first-time home buyer, you and your spouse or common-law partner must generally not have owned and occupied a home in the current year or in any of the four preceding years. Crucially, however, the HBP applies only to homes located in Canada. That means a vacation property in Portugal does not meet the HBP’s location requirement and would not qualify for a tax-free RRSP withdrawal under this program.

If you were to withdraw RRSP funds for the Portuguese purchase outside of the HBP, the amount withdrawn would be added to your taxable income for the year and taxed at your marginal rate. That treatment can significantly increase your tax bill, making RRSP withdrawals an unattractive way to fund an overseas vacation property.

From a financial standpoint, owning a property you use only intermittently often doesn’t make sense unless you plan to rent it out or expect substantial capital appreciation. If you will occupy it for only a small portion of the year and are not open to renting it when you are away, renting a vacation home may be the more economical choice.

Taxes on rental income from a foreign property

Owning a rental property abroad creates tax obligations both in the country where the property sits and in Canada. For example, non-residents who earn rental income in Portugal are typically subject to Portuguese tax on that income. As a Canadian resident you must also report worldwide income on your Canadian tax return, including rental income from foreign real estate.

To prevent double taxation, Canada generally allows a foreign tax credit for income taxes paid to another country. That means taxes paid to Portugal may reduce your Canadian tax payable on the same rental income. Additionally, mortgage interest or other costs borrowed to acquire the property—whether the loan is taken in Canada or abroad—may be deductible against rental income, subject to local tax rules and Canadian requirements.

If you hold foreign rental property or other foreign assets, you may also have an information-reporting obligation with the Canada Revenue Agency. Form T1135, the Foreign Income Verification Statement, must be filed when the total cost of specified foreign property exceeds CAD$100,000. This form helps disclose ownership of foreign investments, including real estate held for income purposes.

Taxes on the sale of a foreign property

A foreign property can, in some circumstances, qualify for Canada’s principal residence exemption, which shelter capital gains on the sale of a principal residence from Canadian tax. In practice, however, most people claim the principal residence exemption for their Canadian home; claiming it for an overseas property is less common.

If your main residence remains in Canada and you sell a foreign property such as one in Portugal, you will generally face tax on the capital gain in the foreign country, calculated in the local currency. Canada will also tax the gain, calculated in Canadian dollars based on the purchase and sale amounts converted at the relevant exchange rates. Currency movements between the purchase and sale dates can increase or decrease the Canadian-dollar capital gain relative to the foreign-currency gain.

When evaluating a potential sale, you should determine the cost base and proceeds in Canadian dollars at the dates of purchase and sale. This calculation will show whether the taxable gain in Canada differs materially from the gain reported abroad.

With the HBP, does it still make sense to buy?

In short, Andy: you cannot use the Home Buyers’ Plan to buy a vacation home in Portugal. The newer first home savings account (FHSA) follows a similar rule and applies only to qualifying housing in Canada. If your purchase is for personal enjoyment, limited use, or occasional rental, run the numbers carefully—consider tax consequences, rental income potential, local compliance, and currency risk—before deciding to buy.

There are ongoing tax implications if you rent the property and potential capital gain tax when you sell. Factor in these considerations alongside maintenance, insurance, local regulations, and management costs. Ultimately, weigh expected usage, rental prospects, and long-term financial goals to determine whether ownership or renting is the better path.

Read more about the taxes on foreign property:

• Is a vacation home a good investment?
• Tax implications of selling U.S. real estate
• Where do we pay income tax if we retire abroad?
• Tax implications of working abroad for residents and non-residents of Canada