The RRSP Home Buyers’ Plan was introduced in 1992 to give Canadians a way of using their RRSP to buy a house or apartment. Since then, hundreds of thousands of first-time home buyers in Canada’s RRSPs have been used to buy a house or apartment.
Given the way the housing market in much of Canada has skyrocketed in recent years, the RRSP Home Buyers’ Plan is likely to increase in popularity as down payments increase dramatically. The RRSP home buyers’ program is likely to become an essential part of the home buying process for even more Canadians.
In this guide to the RRSP Home Buyers’ Plan, we’ll answer many of the most common questions. These include how to use an RRSP to buy a house; how do RRSP Home Buyer’s Plan repayments work; RRSP first-time home buyers’ plan disadvantages and advantages; where to get first-time home buyer RRSP forms; and if there is a difference in provinces, for example, between a first-time homebuyer in Alberta RRSP plan and a first-time homebuyer in Ontario RRSP plan.
How to qualify for the RRSP Home Buyers’ Plan
There are a few conditions you need to meet to be able to take advantage of the first-time home buyer Canada RRSP plan. You have to:
- Be considered a first-time home buyer in Canada with RRSPs
- Be in possession of a written agreement to buy or build a qualifying home
- Be a Canadian resident
- Occupy the home as your principal residence within a year of buying or building it
You can also qualify for the RRSP home buyers’ program if you’re buying or building the home for a relative with a disability.
If you fulfill the qualifying criteria for the first-time home buyer RRSP plan, you can withdraw money from your RRSP to help you buy a home, without any tax consequences. The first-time home buyer RRSP limit for HBP withdrawals is $35,000 per person. However, when using an RRSP to buy a house or an apartment, your spouse can also withdraw up to the first-time home buyer RRSP limit of $35,000, if they qualify.
All of the RRSP first-time home buyer limit has to be withdrawn in the same calendar year. These are a few other RRSP Home Buyers’ Plan conditions:
- Only the RRSP holder can withdraw funds from the RRSP
- First-time home buyer RRSP plan rules don’t usually allow you to withdraw funds from locked-in RRSPs
- Contributions must have been in your first-time home buyer RRSP for at least 90 days before you withdraw them
- You have to fill out the first-time home buyer RRSP Form T1036 for each eligible withdrawal
Given that you have to live in the home you buy with the RRSP funds, you can’t use the RRSP Home Buyers’ Plan to buy a second home.
Who is considered a first-time home buyer in Canada for the RRSP plan? Anyone who did not live in a home that they or their spouse/common-law partner owned during the four-year period before withdrawing funds from their RRSP.
Withdrawal from RRSP under Home Buyer’s Plan
It is a fairly simple process to make withdrawals with the RRSP home buyers’ program:
- Fill out the first-time home buyer RRSP Form T1036 for every withdrawal you make.
- After filling out area 1 of the form, send it to the financial institution that holds your RRSP.
- Your financial institution will fill out Area 2 of the form and release funds to you without withholding tax.
- You are allowed to withdraw funds from several RRSPs but must submit a first-time homebuyer RRSP form for every withdrawal.
Is there a difference in how to use an RRSP to buy a house in other provinces? There is no difference from province to province: the first-time homebuyer in Alberta’s RRSP plan has the same rules as the first-time homebuyer in Ontario’s RRSP plan.
RRSP Home Buyers’ Plan repayments
When you participate in the RRSP home buyers’ program, you have to pay the full amount that you withdraw back into your RRSP within 15 years. RRSP Home Buyers’ Plan repayments start the second year after the year you make your HBP withdrawals.
Each year’s repayment must be a minimum of one-fifteenth of the total to be repaid. If your RRSP Home Buyers’ Plan repayment is less than the required amount, you have to include the difference as income on line 12900 of your income tax return.
If anyone who has used their RRSP for a home purchase dies before making the repayments, the balance of their RRSP Home Buyers’ Plan must be included in their income for the year of their death.
If someone turns 71 before making the repayments to the RRSP for a home purchase, they will have to:
- Repay the whole outstanding balance, or
- Divide the repayable balance by the number of years remaining in the repayment period and include that amount as income for each of the remaining years thereafter
How to cancel your participation in the RRSP Home Buyers’ Plan
You can only cancel your participation in the RRSP Home Buyers’ Plan if:
- You did not buy or build a qualifying home
- You became a non-resident before buying or building a new home
And either of the above also applies if you were buying for a related person. If you repay the full amount that was withdrawn, you will not be taxed. Any amount that you don’t pay back will be treated as income on your tax return.
How to cancel your RRSP Home Buyers’ Plan:
- Make the repayment to your RRSP by December 31 of the year after you received the funds
- Write a letter to the CRA explaining why you’re cancelling your RRSP Home Buyers’ Plan
- Include the completed Form RC471
- Attach your cancellation repayment receipts
- Send the letter, form and receipts to the relevant address
Advantages and Disadvantages of Using RRSP Home Buyers’ Plan to buy first house
The most obvious advantage of the RRSP Home Buyers’ Plan is that it allows many more Canadians to buy their first home than would otherwise be able to. Being able to use up to $35,000 of RRSP money for a down payment (or $70,000 for couples) can be the difference between owning a home and being forced to continue renting.
One of the main RRSP first-time home buyer disadvantages is that the money has to be repaid within 15 years. For many people, this won’t be a problem, as this can include work-based RRSP contributions. For some however, this can put a burden on their income.
Another of the chief RRSP first-time home buyer disadvantages is that you can’t have owned your primary home within four years of applying. In this case you would have to wait until the four-year period was up before applying.
How a CHIP Reverse Mortgage can help you once you’ve bought your home
For Canadian homeowners aged 55-plus, a reverse mortgage can be a useful financial tool, especially when you get into your retirement years.
You can borrow up to 55% of the value of your home in tax-free cash (and it can be used to pay off an existing mortgage). One of the main advantages of a CHIP Reverse Mortgage is that you don’t have to make any regular mortgage payments. You only pay back what you owe when you move out or sell your home, so you never have to worry about how the mortgage will impact your retirement income.
Call us today toll-free at 1-866-758-2447 to find out how much tax-free you can receive with a CHIP Reverse Mortgage.
