The Home Buyers’ Plan allows first-time homebuyers to borrow up to $25,000 from their RRSPs to purchase their own residential property. The home that is purchased needs to be your principal residence — a rental property will not qualify.
First-time home buyers are people who have not owned a home in the period of time that:
• Begins on Jan. 1 of the fourth year before the withdrawal of the funds; and
• Ends 31 days before the date you withdraw the funds from the RRSP.
You are not considered a first-time home buyer if you, your spouse or common-law partner, or your former spouse or common-law partner, owned a home that you both occupied as your principal place of residence at any time during that period of time.
If you qualify for the Home Buyers’ Plan, you must withdraw the funds from your RRSP within 30 days of completing the purchase. You are required to repay the Home Buyers’ Plan withdrawal to your RRSP, without interest, in equal instalments for up to 15 years beginning in the second year after the year you withdrew the funds. You can repay the full amount into your RRSP at any time.
A repayment to the RRSP must be made in the year or within 60 days after the end of the particular year. You do not get an RRSP deduction for Home Buyers’ Plan repayments. You will be taxed on any required repayments you do not make or to the extent the repayment is less than the required amount to be repaid. You will also permanently lose the ability to contribute the amount of the missed repayment to your RRSP.
Interest on funds borrowed to make Home Buyers’ Plan repayments is not tax deductible.
For spouses and common-law partners planning to jointly purchase their first home, each person can withdraw up to $25,000 for a total of $50,000 from their own RRSPs. Repayments must likewise be made to their respective RRSPs. If there is a spousal RRSP, the RRSP funds are considered to belong to the spouse who is the annuitant of the RRSP, not to the spouse who is the contributor.
You cannot deduct an RRSP contribution if you make the contribution to your RRSP or to a spousal RRSP and within 90 days of the contribution the funds are withdrawn under the Home Buyers’ Plan.
Consult with a chartered professional accountant and investment advisor because while a withdrawal from RRSP will save you interest personally, it will negatively affect the growth in the RRSP.
For more tips on RRSPs and tax filing, visit rrspandtaxtips.com.
