RRSP Tip Time: The Home Buyer’s Plan and New Form T1036

The Canada Revenue Agency (CRA) has released a new information package pertaining to the Home Buyer’s Plan and has included the required Form T1036.

The Home Buyer’s Plan (HBP) allows first time home buyers to use up to $25,000 of their RRSP savings ($50,000 for a couple) to help finance a down payment on a qualified home.

A few conditions are attached to the HBP, both before and after the funds are withdrawn from the RRSP, one being that the funds must have been in the RRSP for at least 90 days. 

The withdrawal is not taxable as long as it is repaid to the RRSP within 15 years and it is repaid at a rate of at least one-fifteenth of the amount withdrawn each year.

So is it a good idea to tap your RRSP, a plan meant for retirement savings,for the purposes of buying a home?

For some, yes. Consider the homebuyer who has saved $25,000 for a down payment outside of the RRSP. Assuming there is still enough contribution room for a contribution of that amount, the homebuyer could first move the savings into an RRSP to get a tax deduction of $25,000. This must be done at least 90 days prior to purchasing the home.

Then, withdraw the money through the HBP. The $25,000 RRSP contribution will generate a tax refund received in that year, which can be used to repay the RRSP or other expenses related to buying the home.

So long as this is all taken care of – that is, repaid to your RRSP – within the 15-year time frame, the HBP can be work well both as a money saving tool and a way to leverage tax efficient savings opportunities. And that’s what Real Wealth Management™ is really all about – accumulating, growing, preserving, and transitioning family wealth in the most tax efficient way.

The new form and information package can be found here.