Did you know that you can withdraw funds from your Registered Retirement Savings Plan (RRSP) to purchase or build a home? As a Toronto real estate agent, we are often asked if there are any government programs that can help our buyers obtain homeownership, and the RRSP Home Buyers Plan is one that can save you bundles of money. So what exactly is the program and how does it work? Read on to find out more!
The RRSP Home Buyers Plan is a government program that allows you to draw money from your RRSPs, usually up to $35,000 per individual. These funds that are withdrawn and used to purchase or construct a qualifying home won’t be considered part of your taxable income nor will your RRSP provider deduct taxes from these withdrawals. There are of course some caveats as there always are. The home must qualify, there needs to be a formal agreement in place and the home must be your primary residence within a year of possession and construction.
Qualifications and Details:
- You must fulfill the requirement of being a first-time buyer. You won’t be classified as a first-time homebuyer if, within the last 5 years, either you or your spouse possessed a home that served as your primary residence. To calculate the past 5 years, include the four years leading up to the year of your withdrawal, along with the segment of the withdrawal year that concludes 31 days before you make the withdrawal.
- You and your partner are eligible to withdraw up to $35,000 and are ineligible if you own the home for more than 30 days before the date of the withdrawal.
- Those who withdraw funds for purchasing a home are exempt from paying income tax on the withdrawn amount, provided that the withdrawn funds are eventually repaid into an RRSP.
- The repayment period is 15 years and will begin in the second calendar year after the year in which the money was withdrawn. For example, if an RRSP withdrawal was made in 2012, the 15-year repayment period will begin in 2015.
- To be eligible, the qualifying property must be obtained before the first of October of the calendar year that follows the year of the withdrawal. For example, if the funds were withdrawn in 2012, the qualifying property must be obtained by October 1st, 2013.
- For example, if an individual withdraws under the Home Buyers Plan in 2012, they have until October 1st, 2013 to acquire a home that qualifies. Their first annual repayment will be due by the end of 2014 or within the first two months of 2015. From here, the 15-year repayment period begins.
- To qualify, the money must be in your RRSP for at least 90 days before the withdrawal is made.
If one is looking to purchase a home that is more accessible or is a home for a disabled dependent relative, existing homeowners can use the Home Buyers Plan, otherwise, this plan is reserved for first-time home buyers.
If you are a first-time home buyer and would like to buy with us or would like more information on this post, please feel free to reach out and one of our Toronto real estate agents will get back to you.
