RRSP Home Buyers' Plan
The Home Buyers' Plan (HBP) allows you to withdraw up to $25,000 from RRSPs to buy or build a qualifying home for yourself (as a first-time home buyer) or for a related disabled person. You may still be considered a first-time home buyer if you own a rental property or if you have not recently owned a home.
This is a temporary "loan" from your RRSP — you must pay back the amount you borrow from your RRSP for the Home Buyer's Plan within 15 years or it will be added to your taxable income.
You can make withdrawals from more than one RRSP as long as you are the annuitant (plan owner). Typically, you will not be allowed to withdraw funds from a locked-in RRSP.
How the Home Buyers' Plan works
The Home Buyers' Plan (HBP) allows you to use money in your RRSPs for a down payment on a principal residence.
You can use up to $25,000, or $50,000 per couple, of your RRSPs toward the purchase of a home, as long as the funds are not locked in. For example, an RRSP from a pension plan that that is inaccessible until age 55 would not qualify.
You can use your RRSPs to acquire an accessible or better-suited home for a disabled relative (related to you by blood, marriage or adoption).
You must meet the government's requirements as a first-time homebuyer to make this withdrawal. The primary requirement is that you or your spouse has not owned a home in the last five years.
Withdrawals are not deemed to be taxable income in the taxation year in which they are withdrawn.
There is a no-penalty, 15-year payback period for the RRSP money. Under the terms of the Plan, buyers are required to re-contribute 1/15 of the withdrawal each year, starting two years after the withdrawal was made.
Repayment
If the minimum annual repayment is not made as scheduled, that amount is included as income for that year.
Additional repayments may be made if desired; this will result in a smaller outstanding balance and lower scheduled repayments for the rest of the payback period.
The repayment does not need to be made to the same RRSP from which the original withdrawal was made. You must, however, be the plan holder.
You cannot direct your repayment to a spousal RRSP.
Conditions
ONE of the following conditions must apply:
You are withdrawing funds to buy or build a home for yourself as a first-time home buyer
You are withdrawing funds to buy or build a home for a related disabled person
In addition, ALL of the following conditions must apply:
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You enter into a written agreement to buy or build a qualifying home
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You intend to occupy the qualifying home as your principal place of residence
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Your Home Buyers' Plan balance on January 1 of the year of the withdrawal is zero
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Neither you nor your spouse or common-law partner owns the qualifying home more than 30 days before the withdrawal
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You are a resident of Canada
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You buy or build the qualifying home before October 1 of the year after the year of withdrawal
You are responsible for making sure that all Home Buyers' Plan conditions that apply to your situation are met. If a condition is not met while you are participating in the plan, your RRSP withdrawal will not be considered eligible. You will have to include the RRSP withdrawal as income on your income tax return for the year you received the funds.
If you do not meet the conditions to participate in the HBP in the current year, you may be able to participate at a later date.
New First-Time Home Buyers' Tax Credit
Budget 2009 proposes to introduce a new non-refundable tax credit for first-time home buyers. The credit will be calculated based on an amount of $5,000 and will provide tax savings of up to $750 to reduce the costs of first home purchases completed after January 27, 2009.
An individual will be considered a first-time home buyer if neither the individual nor the individual's spouse or common-law partner owned and lived in another home in the calendar year of the home purchase or in any of the four preceding calendar years. A qualifying home will be one that is currently eligible for the Home Buyers' Plan which the individual or a spouse or common-law partner intends to occupy as a principal place of residence. The credit will also be available for certain acquisitions of a home by or for the benefit of an individual who is eligible for the disability tax credit.
Any unused portion of an individual’s First-Time Home Buyers’ Tax Credit can be claimed by the individual’s spouse or common-law partner, but the total amount claimed cannot be more than the maximum amount that would be claimable for the year by any one of those individuals.
Using RRSPs
for the Home Buyers' at the same time as the Lifelong
Learning Plan
You can participate in the Home Buyers' Plan even if you have withdrawn funds from your RRSPs under the
Lifelong Learning Plan and still have a balance owing.
October 1 is the magic date
Normally you must buy or build the home before October 1 of the year after the year of the withdrawal. For example, if you withdraw funds from an RRSP in March 2008, you must buy or build the home before October 1, 2009.
Get all the facts
Canada Revenue Agency provides a very comprehensive document on the Home Buyers' Plan. You can download it from their site at
http://www.cra-arc.gc.ca.
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