How to use your RRSP to buy a home

You may or may not be aware that if you are a first-time homebuyer, you can withdraw up to $35,000 from your registered retirement savings plan (RRSP) without paying any personal taxes. The federal government’s Home Buyers’ Plan allows you to withdraw from your RRSP to use as a down payment and/or closing costs on a new home, or to buy or build a qualifying home for yourself or for a person with a disability who is related to you.

You are considered a first-time homebuyer when…

Typically, you must be a first-time homebuyer to withdraw funds from you RRSP. However, you are not considered a first-time homebuyer if you or your spouse or common-law partner owned a home that you occupied as your principal residence during the period beginning Jan. 1 of the fourth year before the year of the withdrawal and ending 31 days before your withdrawal. For example, if you are withdrawing funds for Mar. 31, 2022, the four-year period would begin Jan. 1, 2018, and end on Feb. 28, 2022 (31 days before the withdrawal date.)

You are exempted from the above condition if you are a person with a disability, or you are helping a relative with a disability buy or build a home.

In addition to the above criteria, the following conditions apply:

• Neither you nor 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 may be with a builder, contractor, realtor or private seller.
• You intend to occupy the qualified home as your principal residence. When you withdraw the funds from your RRSP under the Home Buyers’ Plan, you must 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 several withdrawals throughout the same year and January of the following year, if the total of your withdrawals is not more than $35,000.
• Your RRSP contributions must be in a 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 $35,000 from his or her RRSP, provided each of you meet the Home Buyers’ Program conditions.

Did your marriage or common-law partnership end?

In this case, you will be able to use your RRSP up to $35,000 even if you don’t qualify as a first-time homebuyer. You will need to live separately or apart from your spouse or common law partner for a period of at least 90 days after your marriage or common-law partnership ended. In addition, you can withdraw your RRSP if you are not living together at the time of the withdrawal and began to live separately and apart in the year in which the withdrawal was made. However, if your principal place of residence is a home owned and occupied by a new spouse or common-law partner, you will not be able to withdraw the RRSP as part of the Home Buyers’ Program.

You will be required to sell off your previous principal place of residence no later than two years after the end of the year in which the RRSP was withdrawn as part of the Home Buyers’ Program. This requirement will be waived if you buy out the share of the residence owned by your spouse or common-law partner.

How does the repayment of an RRSP work?

Your first repayment is due in 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’ Program. For each year of your repayment period, you must repay 1/15 of the total amount you withdrew until the full amount is repaid to your RRSP. 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.