By Lachman Balani
TORONTO: One of the many good reasons to contribute to RRSPs is the possibility of using the funds from an RRSP for a down payment on your home. This money is available to you free of penalty, interest and tax. This is an excellent deal.
Coming up with enough money for a down payment is often an obstacle standing in the way of many Canadians who are ready to purchase their own home.
For this and other reasons, the Government of Canada has implemented the Home Buyers’ Plan which allows qualified first-time home buyers to withdraw up to $25,000 from a Registered Retirement Savings Plan (RRSP) – without penalty, interest or tax – to use as a down payment on their new home.
To qualify for the Home Buyers’ Plan the following conditions must apply:
- You must be a Canadian citizen or a permanent resident.
- The funds must have been deposited into the RRSP for a minimum of 90 days prior to withdrawal.
- You may only withdraw up to a maximum of $25,000 from your RRSP. If you are married or purchasing the property with another first-time home buyer, each individual may withdraw up to a maximum of $25,000 from an RRSP for a total of $50,000.
- Only the individual who owns the RRSP can withdraw the funds. You can make withdrawals from more than one RRSP as long as you are the owner. The combined withdrawal amount cannot exceed the $25,000 maximum per individual.
- You must buy or build before October 1 of the following year after your withdrawal. For example, if you withdrew funds from your RRSP in August 2010, you must buy or build before October 1, 2011.
- If you have already bought your home and wish to withdraw further money from your RRSP for the home, you must do it within 30 days from the day of your home purchase. As an example, this may occur if you already have say $20,000 in your RRSP but about 60 days before the purchase date of your home you contribute an extra $5,000 into your RRSP. You can then utilize this money even after buying your home, provided it is withdrawn within 30 days after the closing date.
- The property being purchased must be occupied by the owner unless you are purchasing the property for someone who is related to you and who is disabled, and the new home is proven to be better suited to their needs than their current residence.
- The Home Buyers’ Plan cannot be used to purchase investment or rental property.
If you are disabled, you can participate in the Home Buyers’ Plan to buy or build a more accessible home than the one in which you currently reside.
- You must begin to repay your RRSP two years after the funds are withdrawn. You have 15 years to repay the funds with at least 1/15 of the funds being repaid each year. If you fail to repay the minimum of 1/15 per year, that amount will be considered taxable income.
- Your RRSP can be established with borrowed funds (which could result in a significant tax refund, which in turn could be used as the down payment or closing costs).
- You can participate in the Home Buyer’s Plan more than once, but only if your balance from the first withdrawal is fully repaid by the time you want to re-apply.
A question for you this week:
What is the maximum amount each individual can withdraw from his/ her RRSP for a down payment on his/her home without penalty, interest nor tax.
Send in your answers to firstname.lastname@example.org to be entered in a draw to win two golf caps and a set of golf balls.
(You can contact Lachman Balani at 416-902-3580 or email@example.com)