Perhaps you don’t have a cash downpayment saved but you have been diligently contributing to your RRSP for years. Under the Canadian government’s Home Buyers Plan (HBP), you can actually use up to $25,000 from your retirement savings plan (RRSP), tax free, as a down payment to buy or build a qualifying home. This means, if you meet the plans criteria, you will be able to cash out your RRSPs for the purpose of purchasing your first home, without being taxed on those funds and with a very generous repayment period.
To qualify for this program:
* You must be a first time home buyer
NOTE: Even if your spouse or common law partner has owned a home before you may still be considered a first time home buyer
* Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year. * You must be the individual who is entitled to receive payments from the RRSP * Your RRSP must be an open investment and not part of a group RRSP * You must intend to occupy the property as your principle place of residence no later than one year after buying or building it, however, neither you nor a spouse can own the home for more than 30 days before the withdrawal is made. * You are a resident of Canada * You cannot withdraw more than $25,000
The process for participating in this program is fairly simple:
1) You must enter into a written agreement to buy or build a qualifying home and qualify for appropriate mortgage financing BEFORE applying to withdraw funds under the HBP program
2) Complete Form T1036 ( HBP – Request to Withdraw Funds From an RRSP) for each eligible withdrawal and submit to your RRSP issuer
3) You must receive all withdrawals in the same calendar year
4) You must arrange to buy or build the qualifying home before October 1 of the year after the year of the withdrawal.
You are given a maximum of 15 years to repay all your withdrawals and you will be required to repay at least 1/15 of the total amount every year until your HBP balance is zero. If you do not repay the amount due each year, it will have to be included in your income for that year.
To learn more about this program, have a look at the CRA’s Guide to the Home Buyers Plan or speak to one of our Licensed Mortgage Brokers.
The HBP program can also be used when buying or building a qualifying property for a disabled family member or when assisting them to purchase a home.