RRSP Home Buyers Plan

The Canadian government’s Home Buyers’ Plan allows first time home buyers to borrow up to $25,000 from your RSP for a down payment, tax free. If you’re purchasing with someone else who’s also a first time home buyer, you can both access $25,000 from you RRSP for a combined total of $50,000. However, since the HBP is considered a loan, it must be repaid within 15 years.

The funds do not have to be used for down payment, but the withdrawal must correspond to a home purchase. You can use the funds for anything that pertains to the purchase.

First Time Home Buyer Eligibility

1. RRSP funds must be in your account for at least 90 days prior to withdrawal
2. You cannot have owned a home within the previous 4 years
3. If you’re buying with a spouse (or common law partner) who is not a first time buyer, you cannot have lived in a house they owned within the previous 4 years
4. You have entered into an agreement to buy or build a qualifying home
5. You must intend to occupy and live in the home within one year of the purchase as your primary residence
6. If you have used the HBP before you cannot have an outstanding balance due
7. You must make the withdrawal from your RRSP within 30 days of taking title of the home
8. You must be a Canadian resident

If you make a withdrawal from your RRSP, but do not meet the first time home buyer eligibility requirements, this withdrawal will be taxed and you must include it in your income tax statement as taxable income.

Buying with a Partner

If you and your partner both meet the first time buyers requirements, each of you can withdraw up to $25,000 form your RRSP, totaling $50,000

If only you qualify as a first time buyer, you will still be eligible to withdraw $25,000, provided you have not lived in, as your primary residence, a home owned by your spouse or common law partner

How the Home Buyers Process Works

1. Print off a copy of the CRA T1036 from the CRA website www.cra-arc.gc.ca
2. Fill out section 1. Give the form to the financial institution that holds your RRSP so they can fill out section 2
3. Your financial institution will give you a T4RSP form. You must reference this form when filing your income tax return for the year you made the withdrawal
4. Beginning 2 years from your purchase, you must begin making annual payments over 15 years to pay back the loan to your RRSP. CRA will send you a Notice of Assessment each year indicating the following;
   1. The amount of the loan you have repaid
   2. The balance left to be repaid
   3. The amount of your next payment

Repaying the Loan

You must repay the loan within 15 years, with the first payment due 2 years after you first withdrew the money.

To start repaying the loan, you must make a contribution to your RRSP in the year repayment is due or in the first 60 days of the following year.

For example, if you withdrew $12,000 from your RRSP, you would have to make a minimum payment of $1,000 back in to your RRSP every year, beginning 2 years after you made the withdrawal.

If you don’t make a payment one year, the amount of your payment will be added to your income tax for that year, and taxes as income at your marginal rate.

You can repay the loan amount as quickly as you want, and can pay more than the minimum at any time.