As a real estate lawyer, I often receive inquiries about the eligibility requirements for the RRSP Home Buyer’s Plan (HBP).
For regular RRSPs, the basic rule is simple: If you make a withdrawal from your RRSP, those funds are included in 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 Canada Revenue Agency on your behalf.
However, the RRSP HBP 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 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 regarding the withdrawal of funds for this purpose. Essentially the withdrawal is an interest-free loan from your RRSP to yourself. You must repay the total amount withdrawn within 15 years, in annual installments.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 HBP 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.
Here’s an example of this time restriction:
- 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 Jan. 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 HBP, 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.
Toronto lawyer Martin Rumack’s practice areas include real estate law, corporate and commercial law, wills, estates, powers of attorney, family law and civil litigation. He is co-author of Legal Responsibilities of Real Estate Agents, 4th Edition, available at the TREB bookstore and at LexisNexis. Visit Martin Rumack’s website.
