Using RRSP for a Down Payment

If you are a first-time home buyer, you may use up to $25 000 ($50 000 for a couple) from your RRSP account towards the down payment of your home.

If you are a first-time home buyer, you may withdraw up to $25 000 ($50 000 for a couple) from your RRSP account. This means that my purchasing your first property, you can use $25 000 of pre-tax dollars (aka. your RRSPs)! Remember, your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them. So you must plan ahead and ensure that your funds are deposited well before looking for a house. This is all done through a government program, called the Home Buyer’s Plan.

Do you meet all the withdrawal conditions?

  • You have to be a resident of Canada at the time of the withdrawal.
  • You have to received all withdrawals in the same calendar year (or by January the following year if withdrawing more than once).
  • You cannot withdraw more than $25,000 ($50 000 for a couple)
  • Only the person who is entitled to receive payments from the RRSP can withdraw funds from an RRSP. You can withdraw funds from more than one RRSP as long as you are the owner of each RRSP.
  • Normally, you will not be allowed to withdraw funds from a locked-in RRSP or a group RRSP.
  • Your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them under the HBP. If this is not the case, the contributions may not be deductible for any year.
  • Withdrawal must be done latest 30 days after owning the home.
  • You have entered into a written agreement to buy or build a qualifying home
  • You must intend to live in the home within one year of purchase as your primary residence
  • If you have used the Home Buyers’ Plan before, you cannot have any outstanding balance due

You are also eligible if you haven’t occupied a home that you, your spouse or common law partner owned in the last four years. Note that even if your spouse or common law partner owned a home, as long as you didn’t live in it, you may still be eligible as a first-time home buyer.

Note that the Home Buyer’s Plan doesn’t say anything about the size of your down payment. All your RRSP withdrawals don’t necessarily have to go towards your down payment, although a portion of it definitely will. If your down payment is only $20 000, you can still remove up to $25 000. The remaining $5 000 can be used for repairs, furniture, moving costs or anything else.

To withdraw the funds, fill out the Form T1036, Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP and send it to your RRSP account holder for each eligible withdrawal.

Think of your RRSP withdrawal as an interest-free loan that must be repaid. Repayment must be made within 15 years. Every year, you’ll pay 1/15 of your RRSP withdrawal. For example, if you withdrew $15 000 for a down payment, you would pay $1 000 back into your RRSP account every year for 15 years. Of course, you can always pay it back earlier if you’d like. These repayments are not tax-deductible, since they are repayments, not new contributions.

This is just one program designed to help first-time home buyers. For more, check out my blog on Home Buyer’s Tax Credit. As you can see, working with someone knowledgeable is a huge benefit. Programs exist that are designed to help you, but they aren’t always general knowledge. Also, there are a lot of minute details for each program. So, it helps to speak with a professional. Contact me today to get a personalized solution to your unique situation.

 

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