Everything You Need to Know About the RRSP Homebuyers Plan
The Registered Retirement Savings Plan (RRSP) is one of the most remarkable sources of funding for a homebuyer’s down payment. If you’re a first-time homebuyer, the Canadian government’s Home Buyers’ Plan (HBP) allows you to borrow up to $25,000 (tax-free) from your RRSP for a security deposit.
But there is one small catch…
You must repay that amount back into your RRSP within 15 years because the HBP is a loan.
Do you qualify?
To qualify for the HBP, here are the requirements you need to meet:
- You’re a Canadian resident
- You cannot have owned a home within the previous four years
- The RRSP funds you’re borrowing must be in your account for at least 90 days prior to withdrawal
- You must make the withdrawal from your RRSP within 30 days of taking title of the home
- If you're buying with a spouse or common law partner who is not a first-time homebuyer, you cannot have lived in a house they owned for 4 years
- You’ve entered into a written agreement to buy or build a qualifying home
- You intend to live in the home as your primary residence within one year of purchase
If you’ve used the Home Buyers’ Plan before, you cannot have an outstanding balance due. So what happens if you make a withdrawal from your RRSP, but you don’t meet the first-time homebuyer qualification criteria? Then your withdrawal will be taxed and it is mandated that you include it as taxable income on your income tax statement.
Are you purchasing with a partner?
If you’re purchasing the property with someone (a spouse or a common-law partner), and both of you meet the first-time homebuyers’ qualification requirements, each of you is allowed to withdraw up to $25,000 from your RRSPs for a combined total of $50,000.
Now let’s say it’s only you who’s eligible as a first-time homebuyer. You’re still allowed to withdraw the $25,000 on the condition that you have not lived in, as your main residence, a home owned by your partner (spouse or common-law partner).
How does the HBP process work?
- Make sure the funds you withdraw for the Home Buyers’ Plan were in your account for at least 90 days before your withdrawal.
- Print off a copy of Form T1036 to participate in the Home Buyers’ Plan. The T1036 Form is available on the Canada Revenue Agency’s website (cra-arc.gc.ca). You fill out Section 1 and then hand the document over to the financial institution in charge of your RRSP. The financial institution then fills out Section 2 of the form.
- After this, your financial institution sends you a T4RSP form. This form confirms the amount you withdrew from your RRSP as part of the Homebuyers’ Plan. It is mandated that you reference this form in your income tax return for the year you withdrew the money.
- The withdrawal must be made within 30 days of taking title of the property. If you make the withdrawal after this 30-day period, it won’t qualify for the HBP and you will be taxed on the amount of money you withdrew.
How does the loan get paid back?
Beginning two years after the purchase of your home, you must begin making annual payments over the course of the next 15 years to pay back the loan to your RRSP. Canada Revenue Agency will send you a Notice of Assessment, which will clearly show the amount of the loan you have repaid, the balance left to be repaid, and how much you’re expected to pay next. To start paying back the loan, you need to make a contribution to your RRSP in the year the repayment is due or within the first 60 days of the year that follows.
Take advantageIf you’re someone who’s already paying into an RRSP or seriously considering it, the HBP can help you make a substantial down payment from money you’ve already saved – tax free! And we all know that closing the gap between money spent and money earned is essential as we make the largest purchase of our lives!