RRSP's for Down Payment
To qualify for the Home Buyers' Plan the following conditions must apply:
- 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.
- Generally, you cannot use funds from a locked-in RRSP.
- The funds must have been deposited into the RRSP for a minimum of 90 days prior to withdrawal.
- A signed agreement proving your intent to purchase is required. This means you must provide a purchase contract from a builder or seller showing you as the buyer.
- 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 June 2010, you must buy or build before October 1, 2011.
- 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- You must begin to repay your RRSP two years after the funds are withdrawn.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).
- 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.
If both you and your spouse meet the first-time homebuyer eligibility requirements, each of you can withdraw up to $25,000 from your RRSPs for a total of $50,000.In order to participate in the Home Buyers' Plan, you must print off a copy of Form T1036. This form is available from Canada Revenue Agency's website (www.cra-arc.gc.ca). You must fill out Section 1 then give the form to the financial institution that holds your RRSP so they can fill out Section 2. Your financial institution will send you a T4RSP form, which will confirm how much you withdrew from your RRSP as a part of the Home Buyers' Plan. You must reference this form in your income tax return for the year you made the withdrawal.
Repaying the Home Buyers' Plan
Since the Home Buyers' Plan is considered a loan, you must repay the amount you withdrew from your RRSP within 15 years, with the first payment due two years after you first withdrew the money. Canada Revenue Agency will send you a Notice of Assessment, which will indicate the amount of the loan you have repaid, the balance left to be repaid, and the amount of your next payment. To start repaying the loan, you must make a contribution to your RRSP in the year the repayment is due or in the first 60 days of the following year.1
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