Did you know that first time home buyers in Canada can use part of their R.R.S.P. without having to pay taxes? The Home Buyers Plan (HBP) is a Canadian federal government program which helps Canadian residents buy a home for the first time. John Heath, a BMO Mortgage Specialist, was nice enough to share the information below about the program.
R.R.S.P. Home Buyer Plan
Qualified buyers (as described below) may borrow INTEREST FREE FOR 15 YEARS from RRSP savings up to $25,000 per buyer (up to $50,000 per buying couple) towards the cash down payment on the purchase of a residence. Banks discourage buyers from doing so BECAUSE banks want buyers to borrow by paying bank interest and not by borrowing interest free for 15 years from RRSP which does not profit the bank. The VERY best investment for one’s RRSP is in the purchase of a principal residence which, in time, generates a TAX FREE capital gain!
FIRST TIME BUYER:
You must be a first time home buyer or you (or your spouse or common law spouse) must not have owned a home that you occupied in the last five (5) years. Provided you satisfy all requirements, you may re-activate the program. Before withdrawing RRSP funds, you must have a written agreement to purchase a home.
You must use the home as your principal residence in Canada within one year of completing the purchase.
RESIDENT OF CANADA :
You must be a resident of CANADA for the period between the date of withdrawal of RRSP funds and the closing date of the house purchase.
ANY HOME (NEW OR RESALE):
The home can be new from the builder or resale.
NO MONEY OWED FOR PRIOR RRSP BORROWINGS:
At the time of the RRSP withdrawal, you must NOT owe any money to your RRSP for a prior borrowing from RRSP to buy a home.
90 DAY DEPOSIT;
R.R.S.P. funds must have been on deposit for at least 90 days before they can be used under the program.
WITHDRAW RRSP WITHIN 30 DAYS OF COMPLETING HOME PURCHASE
RRSP funds cannot be withdrawn later than 30 days after the house purchase is completed and if multiple withdrawals, they must be made in the same calendar year or in January of the next year.
FUNDS FOR ANY USE:
The funds can be applied to the down payment, land transfer tax, legal fees and disbursements, improvements to the home, even furniture and appliances.
MAXIMUM $25,000.00 PER BUYER:
You can borrow up to a maximum of $25,000.00 from your R.R.S.P. tax free. Maximum for two spouses (or any 2 buyers) is $50,000.00. Any such qualified withdrawal from RRSP is not subject to tax at time of withdrawal.
After an initial grace period of the year in which the withdrawal was made (plus one more full calendar year), you are required to pay back the funds borrowed (beginning in the second year following the year of withdrawal) over a period of 15 years by depositing 1/15th of the amount withdrawn, annually to your R.R.S.P. Prepayments are allowed at any time without penalty. However, if you miss a payment for any given year, you will not be allowed to pay it back and it will be included in your taxable income for that year. If a person paying back dies or becomes a non-resident or becomes 70 years of age, additional repayment rules apply.
For more information:
Contact the nearest branch of your Bank or phone Revenue Canada at 1-800-959-8281
John Heath BMO Mortgage Specialist 647-290-4063 firstname.lastname@example.org