RRSP Home Buyer’s Plan

RRSP Home Buyer’s Plan

Are you planning to use your RRSP for a down payment on a house? Under the federal government’s Home Buyer’s Plan (HBP), if you are a first time home buyer, you can borrow up to $35,000 from your RRSP savings to help finance a home down payment, tax-free.  This is different from regular RRSP withdrawals which must be added to your income and taxed in the year you withdraw them.

How does it work?

The HBP withdrawals are borrowed, which means you need to repay them over a 15-year period.  Any amounts not repaid are included in your income and taxed. As we have mentioned above, this plan is for first-time home buyers only. Starting next year, this clause will be changed to follow a new rule proposed in this year’s federal budget, which will allow any buyer to participate in the HBP even if they are not first-time home buyers, so long as they were living separate and apart form a spouse or common-law partner for at least 90 days.  This rule is aimed at helping those Canadians who separate or divorce keep the homeownership.

What steps must you take?

If you qualify as a first-time home buyer to borrow funds from your RRSP without paying taxes, you must follow a few set of steps to conclude the process. First of all, you have to complete the Canada Revenue Agency Form T1036, also known as the Home Buyers’ Plan request to withdraw funds from an RRSP. Then, you must submit this form to your RRSP issuer.

Make sure you have a written agreement to buy or build a qualified home. In other words, a qualified home is one that was not owned more than 30 days before the withdrawal of funds.

HBP’s stipulations

  • You must occupy the qualifying home as your main residence no later than one year after you buy or build it. The only exception to this rule is if you end up buying a different home then you were planning to originally or if you are building and the construction gets delayed.
  • You must repay the amount you withdrew in equal annual instalments over 15 years. The first instalment is due the second calendar year following the year in which you withdrew the money but can be made up to 60 days after that year-end.
  • Repayments are not tax-deductible as an RRSP contribution.
  • You can always repay more than the minimum annual amount.
  • If you sell your home before the funds are completely repaid, you don’t have to pay off the balance but rather you can simply continue with the regular payment schedule.