Mortgage Blog

First Time Home Buyers RRSP Plan

January 1, 2016 | Posted by: Laurie Anne Faulkner

What is The First Time Home Buyers RRSP Home Buyers Plan?

The Home Buyers’ Plan (HBP) 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.

(HBP) allows you to withdraw funds from your RRSP to buy or build a qualifying home for yourself (as a first-time home buyer) or for a related disabled person.

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 INDIVIDUALLY, 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 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  • Withdrawals are not deemed to be taxable income in the taxation year in which they are withdrawn.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.

You are not considered a first-time home buyer if you or your spouse or common-law partner owned a home that you occupied as your principal place of residence during the period beginning January 1 of the fourth year before the year of withdrawal and ending 31 days before your withdrawal.

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.

Are you a 1st time home buyer?

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.

Do I Qualify?

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:
• You enter into a written agreement to buy or build a qualifying home
• You intend to occupy the qualifying home as your principal place of residence
• Your Home Buyers’ Plan balance on January 1 of the year of the withdrawal is zero
• Neither you nor your spouse or common-law partner owns the qualifying home more than 30 days before the withdrawal
• You are a resident of Canada
• 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.

More tips:

What if I want to sell my home before I have paid off the RRSP loan?
You do not have to repay the remaining balance if you sell your home before your scheduled payments are complete. And you are not required to continue to own the home until the amount borrowed is repaid.

In some situations, outstanding repayment installments have to be reported as income by the borrower:
When you leave the country. If a taxpayer ceases to be a resident of Canada, “the balance of withdrawals made under the plan and not yet repaid must be repaid within 60 days of ceasing residency, or must be included in the individual’s income for that year.”

If you die.
When an individual dies with an outstanding Home Buyer’s Plan repayment balance, “the outstanding amount must be included in the deceased’s income for the year. There is an election that may be made in certain circumstances to allow a spouse of the deceased to effectively take over the deceased’s obligations with respect to repayment installments.”

When your RRSP matures.
If you have an outstanding Home Buyer’s Plan repayment balance at the end of the year in which you turn 69 – the deadline for collapsing an RRSP – this outstanding amount must be repaid before year end or be reported as income on your tax return.

For more information about the HBP, visit Canada Revenue Agency’s website:

RRSP Home Buyers Plan

View More Information on First Time Home Buyers

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