5 facts about the RRSP Home Buyers’ Plan

Alyssa Furtado
by Alyssa Furtado June 29, 2020 / No Comments

An RRSP is a valuable tool for saving for retirement, offering tax-deferral on both contributions and on any interest your account receives. That means you can rack up some serious compound interest on your savings before paying tax – that only has to happen when you withdraw the funds in retirement.

Generally, the funds in your RRSP need to stay there until you retire for it to make financial sense, as there are penalties for early withdrawals. However, the RRSP Home Buyers’ Plan (HBP) is one exception to that rule, at least for first-time home buyers. With the HBP, you can withdraw up to $35,000 from your RRSP for a down payment on a home, which can make owning a home much more financially achievable.

If you’re thinking of using the RRSP Home Buyers’ Plan, there are a few things you should know – beyond the fact that it’s a tax-free loan to yourself. Before you inquire about making a withdrawal, here are 5 facts to consider about the RRSP HBP.

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1. The RRSP 90-day withdrawal rule

Any money you withdraw has to be in your RRSP for at least 90 days. This is 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.

2. The 30-day time limit

You must make the withdrawal within 30 days of taking ownership 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. Withdrawing from multiple RRSPs

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.

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4. Repaying the withdrawal amount

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:

Note: The maximum withdrawal under the Home Buyers’ Plan is now $35,000, not $25,000, as is stated in this video.

5. Not making your minimum repayments

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.

The Bottom Line

As a first-time home buyer, it can be difficult to scrape together enough cash for a down payment on a home. However, if you’ve been diligent in your RRSP contributions, then the Home Buyer’s Plan is a great way to unlock the potential of your savings. However, you need to understand the program and its overall implications on your finances. 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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