Using an RRSP to buy a home

You’re permitted to withdraw up to $25,000 from your RRSP for qualifying home purchases. Form T1036 needs to be filed to report the withdrawal. Under this plan, only first-time homebuyers are eligible to participate, unless the special rules for persons with disabilities (discussed below) apply. You’re considered to be a first-time buyer if, during the four calendar years prior to the year of withdrawal and up to 30 days before the withdrawal, neither you nor your spouse or common-law partner owned a home in which either of you resided. Loan repayments must take place over a period of 15 years, or less if desired, beginning in the second year following the year of withdrawal. If the required repayment is not made, an amount will have to be included as income in the year of the shortfall.

Tax tip: If you contribute an amount to your RRSP, you cannot make a withdrawal under the Home Buyers’ Plan (HBP) within 90 days of that contribution, or your ability to claim a deduction for the contribution may be restricted. As a general rule, you should make your RRSP contribution more than 90 days before the withdrawal. After a waiting period of 90 days or more, your deduction may generate a refund, which can then also be applied toward your down payment.

In a related move, if you have money on hand for a down payment and you’ve accumulated some RRSP contribution room, open an RRSP. Then you can deposit the money into the plan, wait 90 days, be eligible to partake in the HBP and at the same time use whatever refund is issued to bolster your original down payment amount. Be sure to run this by your tax adviser to ensure it’s a sound strategy for your particular financial circumstances.

If you’ve participated previously in the HBP, there are certain situations in which you may be able to participate a second time. First of all, the full amount previously withdrawn must be paid back into your RRSP before the beginning of the given year in which you wish to participate a second time. Also, you must still qualify as a first-time homebuyer.

Tax tip: Each spouse or common-law partner can withdraw eligible amounts under the HBP from any RRSP under which he or she is the annuitant, including spousal RRSPs. Also, each person may withdraw up to the $25,000 limit, or $50,000 in aggregate (if purchasing the property jointly).

Persons with disabilities

If you’re already a homeowner and you have a disability, or if you’re a relative of a person who has a disability, you may withdraw funds from your RRSP under the HBP if the withdrawal is to assist you or your disabled relative to purchase a home.

Some conditions must be met first:

  • You or your disabled relative must qualify for the disability tax credit (see topic 80).
  • The home must be more accessible or better suited for the care of the person with a disability.
  • If you are not disabled, your disabled relative must live in the home or plan to occupy it within one year after the acquisition.