With the March 3rd deadline for 2013 RRSP contributions fast-approaching, many Canadians are busy making last-minute appointments with their financial advisors, in order to invest whatever they still can. If you’re investing money in your RRSP, with the plan that you will one day withdraw up to $25,000 from it through the RRSP Home Buyers’ Plan (HBP) for a down payment on a home, there are a few things you should know beyond the fact that it’s a tax-free loan to yourself. So, before you inquire about making a withdrawal, here are 5 facts to consider about the RRSP HBP:
5. The money has to be in your RRSP for at least 90 days before you can withdraw it. This is actually true if you were to withdraw money from your RRSP for any reason (i.e. the Lifelong Learning Plan), not just to use it as part of your down payment. If the money doesn’t sit in your RRSP for at least 90 days, it may not be tax deductible that year. If you think you’re going to come into some money soon, or if someone is going to gift you part of your down payment, don’t just invest it in your RRSP for the tax break. If you need to withdraw it in the next 90 days for the HBP, you may find that your deposit is on-hold, meaning you wouldn’t be able to access it until after those 90 days are up.
4. You must make the withdrawal within 30 days of taking title of the home. If you try to make the withdrawal more than 30 days after you take title of the home, your withdrawal will no longer be eligible for the HBP and you will be taxed on the amount you withdraw.
3. You can make withdrawals from several RRSPs, so long as you are the owner of each plan. However, you have to receive all withdrawals in the same calendar year. To make a withdrawal, you must complete a T1036 form for each RRSP you want to borrow money from, and submit each form to the issuer of your RRSP. For example, if you have RRSPs at both RBC and TD, you will need to submit two T1036 forms: one to each individual bank. As the second part of this rule suggests, it’s a good idea to submit all of your T1036 forms at the same time, because you have to claim the full HBP amount you borrow in one calendar year on your taxes for that year.
2. Your first repayment isn’t due until 2 years after you make your withdrawal, and the full amount must be repaid within 15 years after that. You can start making repayments anytime, and you can repay the full amount early with no penalty, but these are your minimum repayment requirements. The amount you have to repay each year is equal to 1/15th of the total amount you borrowed from your RRSP. Our Mortgage Math video explains this in further detail:
1. If you do not make your minimum repayment one year, you have to include the amount you did not pay as RRSP income on your taxes. To do this, subtract any amount you did repay from your minimum repayment amount and put the answer in line 129 on your return. This amount will be taxed (which defeats the purpose of taking out this tax-free loan), and your HBP balance will be reduced accordingly.
For a full list of qualifying conditions for the RRSP HBP, as well as a list of important dates, visit the CRA website.
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