In the R.R.S.P Home Buyer Plan, qualified buyers can pay the cash down payment for purchasing a residence by withdrawing from their RRSP savings. A single buyer can withdraw $25000, and a couple can borrow up to $50,000.
Borrowing from your RRSP is recommended for purchasing your principal residence as it has the potential to generate a tax-free capital gain. There are specific clauses in the R.R.S.P Home Buyer Plan which are outlined as below:
First Time Buyer:
There are a few conditions for a person to be deemed to be a first-time home buyer:
- At the time of RRSP withdrawal, no previous RRSP amount borrowed for a home should be outstanding
- There must be a written agreement to buy or build a home for a related person with a disability;
- You must or should not have occupied and owned a home with your common law spouse in the last 4 years (where 4 years starts on the January 1 of the fourth year, before the year the funds are withdrawn and ends 31 days before the date of funds withdrawal)
- You should intend to make the property under purchase as your principal residence within one year of building or making it
If you successfully clear all the requirements, you can enter the program. Your purchase agreement for the home should be ready before you withdraw the RRSP funds.
Principal Residence:
The property purchased as residence must be utilized as your principal residence in Canada within one year of closing the purchase transaction.
Resident of Canada:
Your legal status in Canada must be the resident to participate in this program. The resident status should be valid in the entire period between the date of RRSP funds withdrawal and the closing date of the transaction.
Any Home:
Under this program, you can purchase a new property from a builder or a resale property from an existing owner.
No Outstanding RRSP Borrowings:
When you withdraw from your RRSP, you should have no outstanding RRSP borrowings to purchase any home.
Deposit Period of 90 Days:
The RRSP funds are required to be deposited for a minimum period of 90 days before they can be withdrawn under this program.
Time Limit of RRSP Withdrawal:
Under this program, the funds from RRSP should be withdrawn within 30 days after the closing of the purchase transaction. If there are multiple withdrawals, they need to be completed in the calendar year or latest by January of the following year.
Use of Funds:
The funds withdrawn from RRSP can be used for making the down payment, home improvements, land transfer tax, legal fees and disbursements, appliances and furniture.
Maximum Borrowing Limit:
Under this program, a maximum of $25000 can be withdrawn from your RRSP on tax-free basis. In the circumstance when two spouses or any two buyers are present, the maximum withdrawal limit is $50000.
All funds withdrawn from RRSP under this program are exempt from tax at the time of withdrawal.
Paying Back the Funds:
The funds withdrawn from the RRSP need to be paid back into the RRSP on an annual basis. No repayments are required in the year of RRSP withdrawal and the following calendar year.
The funds are to be paid back over a period of 15 years at the rate of 1/15th per year. Any missed annual payment is included in the taxable income for that year and cannot be paid back into the RRSP.
Prepayments can be done anytime and are not subject to any penalty.
Additional repayment rules apply if the person paying back the RRSP withdrawal happens to become a non-resident, attains the age of 70 or dies.
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