Raising a down payment can be tough for first-time buyers, especially now that new mortgage rules are in place that give buyers a real advantage if they are able to put down 20 per cent or more.
But not everybody knows that if you are a first-time home buyer you are allowed to withdraw up to $25,000 from your RRSPs (registered retirement savings plans) without paying any personal taxes. The funds from the RRSPs may be used for the down payment and/or closing costs. This federal program, called the Home Buyers’ Plan, allows you to withdraw from your RRSPs to buy or build a qualifying home for yourself or for a person that is related to you with a disability.
Typically, you must be a first-time home buyer to withdraw funds from your RRSPs. But what defines who is a first-time buyer – or who isn’t a first-time buyer – is complicated.
You are not considered a first-time home buyer if you, or your spouse or common-law partner, owned a home that you occupied as your principal residence during the period beginning January 1 of the fourth year before the year of the RRSP withdrawal and ending 31 days before your withdrawal.
For example, if you are withdrawing RRSP funds for November 15, 2016, the four-year period would be January 1, 2012 and ends on October 15, 2016 (31 days).
You don’t have to meet the above condition if you are a person with a disability, or you are buying or building a home for a person related to you with a disability, or helping such a person buy or build a home.
In addition to the above, the following conditions apply:
- Neither you or your spouse or common-law partner owns the qualifying home more than 30 days before the withdrawal.
- You are a resident of Canada.
- You must enter into a written agreement (contract of purchase) to buy or build a qualifying home. The agreement maybe with builder, contractor, real estate agent or private seller.
- You intend to occupy the qualified home as your principal residence. When you withdraw the funds from your RRSPs under the Home Buyers’ Plan, you have the intention to occupy the qualified home as your principal residence no later than one year after buying or building it.
- Typically, you are not allowed to withdraw funds from a locked-in RRSP or a group RRSP.
- You can withdraw a single amount or make a several withdrawals throughout the same year and January of the following year, as long as the total of your withdrawals is not more than $25,000.
- Your RRSP contributions must be in an RRSP for at least 90 days before you can withdraw them under the Home Buyers’ Plan. If this is not the case, the contributions may not be deductible for any year.
If you are buying a home with your spouse or common-law partner, or other individuals, each person can withdraw up to $25,000 from his or her RRSP, provided each of you meet the Home Buyers’ Plan conditions.
Your first repayment is due the second year following the year in which you made your withdrawal(s). You have up to 15 years to repay the amount that you withdrew under the Home Buyers’ Plan. Typically, for each year of your repayment period, you must repay 1/15 of the total amount you withdraw until the full amount is repaid to your RRSPs. You can repay the full amount into your RRSP at any time.
For more information or if you are looking at purchasing or building a home, talk to a mortgage expert to assist you.