It has been some time since I last wrote to you. I would like to take this opportunity to send you a Reminder About the Provisions of the RRSP Home Buyers’ Plan. I find a lot of people do not seem to know about this and I would suggest that as a Mortgage Lender this is something to bring to your client’s attention.
I trust you and yours had a good and not too stressful summer with the market conditions, the Rules and Regulations and the rise in the interest rates.
A Reminder About the Provisions of the RRSP Home Buyers’ Plan
As a real estate lawyer, I often receive inquiries about the eligibility requirements for the RRSP Home Buyer’s Plan.
For regular RRSPs, the basic rule is simple: If you make a withdrawal from your RRSP, those funds are included your income for the year that the withdrawal is made. The Plan Administrator will deduct the income tax from the funds being advanced and will remit the tax to the Canada Revenue Agency on your behalf.
However, the RRSP Home Buyer’s Plan is a key exception to the basic rule on how RRSPs are treated.
Under this Plan, an individual can withdraw an amount not exceeding $25,000.00 from his or her own RRSP, and use it towards the purchase of a home (but not an investment property), on a tax-free basis. For those in a marriage or common law partnership, each spouse can withdraw up to $25,000 from their respective Plans tax-free, bringing the total to a maximum of $50,000 in tax-free funds that can be applied towards the purchase of a home. There are certain conditions and limitations in connection with the withdrawal of funds for this purpose.
Essentially the withdrawal is an interest-free loan from your RRSP, to yourself. You have to repay the total amount withdrawn within 15 years, in annual installments. The first installment/payment is due starting in the second taxation year following the date of the withdrawal. If you do not pay the annual installment in any year, then the installment amount will be included in your taxable income for that year.
Note that certain stipulations apply: Under the RRSP Home Buyer’s Plan the exception to the basic rule is available only if one or both spouses did not own an owner-occupied home during the period beginning in the fourth year before the withdrawal is made, and ending 31 days before the withdrawal. An example of this time restriction is as follows:
You are the Buyer who needs funds for closing on May 31, 2017.
Neither you, nor your spouse or common-law partner have owned an owner-occupied property from January 1, 2013 to April 30, 2017.
If you close your transaction during the 30 days prior to May 31, 2017 you are still permitted to make a withdrawal for this purpose from your RRSP.
If you want to take advantage of the RRSP Home Buyer’s Plan, you must complete the necessary paperwork, and provide it to the institution that holds your RRSP. The form sets out the property address, confirms you will be occupying the property as your residence within one year of the purchase, and confirms that you entered into a firm and binding Agreement of Purchase and Sale respecting the property.
If you plan to implement this RRSP Home Buyer’s Plan I recommend that you speak to your RRSP Plan Administrator before starting on your home-buying journey.