How the RRSP's First Time Home Buyers withdraw works
How it works:
Under the “HBP”, the Canada Revenue Agency (CRA) permits you to use your RRSP funds towards the purchase of a new home. Basically, you withdraw funds from your RRSP and use that money toward buying a home, usually as a down payment (the home has to be where you’re going to live, i.e. your principal residence). You don’t have to add the amount of the RRSP money that you withdraw to your income — and be liable for the ensuing taxes — and your RRSP issuer will not tax the funds, either. You then have 15 years in which to repay the money to your RRSP.
How much RRSP money can I use?
You can use up to $25,000 of your RSP money AND your spouse can, too! So, if a couple is buying a home for the first time, they can use $50,000 in RSP funds. As well, two friends buying a home together could also contribute $50,000.
Do I have to pay back the RRSP money?
Yes! Starting the second calendar year following the year in which the withdrawal was made. You have to re-pay 1/15th of the withdrawal amount each year. Failure to pay the minimum 1/15th will see the non – repayed funds added to you income and the end of the year and you will be taxed accordingly.
Who is a First Time Home Buyer?
You might qualify as a “first-time buyer” under the HBP even if you’ve owned a home before! If you haven’t owned a home in the past five years, you may qualify. If you used the HBP in the past, but have paid off the balance owing as of January 1st in the year that you want to buy a home again, you may also qualify.
Things to Watch Out for!
RRSP Funds have to have been on deposit for at least 90 days before withdrawal. So, for those of you thinking of dumping money into an RRSP and then withdrawing it the next day to buy a home, these funds won’t qualify under HBP and you will be taxed accordingly. There are a bunch of criteria that you must meet, too, such as being a Resident of Canada. More details can be found here: Home Buyers’ Plan (HBP).
To Summarize
Regardless of no penalties for withdrawing funds, there are certain guidelines that must be followed in order to remain protected under the HBP’ umbrella: There is a maximum of $25,000 that can be withdrawn from one individual’s RRSP.
- There can be a maximum of two first-time buyers in the purchase of a new home, and each individual can withdraw up to $25,000 for a total of $50,000.
- The purchased home must be owner occupied.
- The RRSP must be repaid within 15 years with minimum annual payments of 1/15th of the withdrawn amount, starting in year 2 – failure to do so will result in 1/15th of the RRSP initially withdrawn having to be added back to taxable income in any year the minimum re-deposit is not made
- You must be a Resident of Canada
- You must qualify as a First Time Home Buyer as per CRA Home Buyers’ Plan (HBP).
Would you like to attend an RRSP's Seminar in Mississauga, presented by TD and RBC Especialists, Date: January 22nd and 29th / 2011
RRSP's Seminar in Mississauga (Spanish Video)
RRSP's Seminar in Mississauga (Spanish Video)
If you have any questions, please feel free to contact me directly GUIDO @ 416 841 6061 or send me an e-mail at gbernal@sutton.com // Visit me at www.guidobernal.com
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