Using the RRSP Home Buyers’ Plan for a down payment

The deadline for making 2014 contributions to a Registered Retirement Savings Plan (RRSP) is in early March, so now’s a great time to brush up on the rules for RRSPs and using those funds to buy a home through the Home Buyers’ Plan (HBP).

But first, a little background on the plans. The Globe and Mail reports that roughly half of Canadians participate in RRSPs. The plans were introduced almost 60 years ago to help Canadians to save for retirement. Deductible RRSP contributions can be used to reduce your tax bill. CRA determines your contribution limit from information in your tax return, but the maximum deduction limit for 2014 is $24,270. Contributions beyond that amount are not deductible, but you can carry forward unused contribution room from the previous year to increase your deduction limit.

Income earned in an RRSP is typically tax-exempt as long as it remain in the plan, but you’d have to pay taxes on earnings when you receive payments from the plan (the assumption being that once you’re retired, you’ll pay taxes at a lower rate than when you were employed).

Here’s what you need to know about the Home Buyers’ Plan.

  • You can withdraw up to $25,000 from your RSSPs in a calendar year for the purpose of buying or building a home for yourself or a relative person with a disability, but you must do so within 30 days of taking title of the home (otherwise, your withdrawal may be taxable). Typically, buyers use this money as a down payment.
  • To participate in the HBP, you must qualify as a first-time homebuyer (you may still qualify if you’ve owned property in the past but have not owned in the past several years) and occupy the home as a primary residence—unless the home is for a relative with a disability or you are a person with a disability. Also, funds must be in your RRSP for at least 90 days before you can withdraw them.
  • You must repay the RRSP withdrawal within 15 years, generally with a minimum of 1/15th per year. Your repayment period starts in the second year after the year you withdrew funds from your RRSP. However there are a few exceptions to the repayment requirements, such as if the HBP participant dies or reaches the age of 71.

The rules for HBP can be confusing and if the withdrawals and repayments aren’t done properly, it can have tax implications. Talk to your accountant or contact CRA if you’re unsure of whether you qualify or how to get started.

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About Atrina Kouroshnia

Atrina Kouroshnia is an independent, licensed, mortgage broker in the province of British Columbia. She has a degree in Human Relations & Commerce, and past work experiences in HR & Real Estate Development. She comes to the table with great customer service and problem-solving skills. Her approach to finding the best mortgage solution involves both short and long-term planning, making sure her clients are in a suitable mortgage that is flexible to their needs.