Using Your RRSPs for a Down Payment
Often the biggest obstacle for first time home buyers is coming up with a down payment. Although it would be ideal to have sufficient funds available or a family member who can provide a gift, often a first time buyer's largest asset is their RRSPs. In most cases withdrawing funds from your RRSPs results in taxes being payable on the amount withdrawn. One exception to this is The Home Buyers' Plan (HBP) which allows you to withdraw up to $25,000 from your RRSPs to buy or build a home for yourself or for a related person with a disability.
There are a number of conditions and restrictions that must be adhered to:
You must be considered a first-time homebuyer, which means that during the previous 4 calendar years and the current calendar year you or your spouse or common-law partner cannot have owned a home that you occupied as your principal place of residence.
You must be a resident of Canada.
All withdrawals under the HPB must be repaid within 15 years.
You must intend to occupy the home as your principal place of residence no later than one year after buying or building it.
Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP.
Although this can be a useful program, dipping into one's RRSPs should not be done without careful consideration. In particular you should examine your budget to see if you will still be able to make regular contributions to your RRSP after the purchase of the house. At a minimum you want to be sure that you can pay back the funds withdrawn within the tax free period. Even better would be to continue making regular contributions to your RRSPs and use the tax refund to pay down the funds that were withdrawn under the HBP.
For further information on the Home Buyers' Plan please contact me or visit the CRA Website.
Posted by John Freeland Smith
on February 14, 2013