What is an RRSP? An RRSP is a registered retirement savings plan that you and your spouse/common-law partner can contribute. It is a government-approved account that enables Canadians to save for their future. Contributions to deductible RRSPs can help you save money on taxes. Any income you generate in an RRSP is usually tax-free if the funds remain in the plan. You must pay taxes when you take payments from the plan.
What is the Home Buyer’s Plan? The Home Buyer’s Plan is a program that allows first-time real estate buyers to use up to $35,000 from their RRSPs to make a down payment. If both you and your spouse have RRSPs, you can take out a combined amount of $70,000. You should know that you must begin paying the money back into your RRSP one year after your withdrawal and match the original withdrawal within 15 years. If you don’t pay back the amount owed, you will include it in your taxable income.
So say you take out the maximum amount of $35,000 this year (2021), you would need to pay back into your RRSP $2,333.33 every year starting in 2022. Should you not put the funds back, you would need to include $2,333.33 in your income for your 2023 tax returns, AND you will still need to pay the amount of $2,333.33 to your RRSP for each of the following years.
How to Qualify for the Home Buyers Plan?
- You must be a first-time homebuyer.
- You must have a written agreement to buy or build the home.
- You must be a Canadian resident.
- You or the disabled family member for whom you are acquiring the property must intend to make it your primary residence during the first year of ownership.
Important pointer, you can only use money that has been in your RRSP for over 90 days. It is common for individuals to get gifts from family members, and they immediately want to put that money into their RRSP for tax saving purposes, be mindful that the money will have a hold on it until the 90 days are up. If you are going through a similar situation, we advise you to contact a mortgage professional for guidance.
Be mindful that it must be within 30 days of taking ownership of the property when you withdraw the money. If you try to take the money out later than the 30 days, you will no longer be eligible for the home buyer plan and will end up being taxed the amount you have withdrawn.
If you need further guidance to utilize the Home Buyer’s Plan, please feel free to reach out to us at Dominion Lending Centres NasaKasa for advice! You can reach us at 905-997-7001 or email us at firstname.lastname@example.org to book an appointment to discuss your individual needs.