Mortgage Tips: Using Your RRSP as a Down Payment

A great way to access cash for a down payment is through the Home Buyers Plan which is a program set up by Canada Revenue Agency (CRA - formerly Revenue Canada). The Home Buyers Plan (HBP) allows each individual who will be occupying a home to withdraw up to $20,000 from their RRSP to buy or build a home without being taxed. This would mean that three people buying a home could withdraw up to $60,000 collectively as long as they meet all of the CCRA HBP conditions.

This program is usually restricted to first time home buyers or those individuals who have not owned a home for a required period. To check out all of the conditions of eligibility please check out the CCRA website using the following link: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html

In addition to the conditions outlined on the above website, the amount that you wish to withdraw for your home purchase needs to be in your RRSP for at least 90 days prior to the withdrawal. It can be withdrawn as a lump sum or as a series of withdrawals as long as they all take place in the same calendar year. Once you have made the withdrawal, you must repay this amount back to your RRSP over a 15 year period. Normally you are required to repay 1/15th each year following the withdrawal but you can repay larger amounts if you wish. By repaying the minimum amount each year there will be no personal tax liability incurred from the HBP.

Because your earnings usually increase each year it is a good idea to pay back the amount you withdrew as quickly as possible. Since the amounts that you repay to your RRSP are not tax deductible a second time, the faster you repay it, the sooner you are able to receive a higher tax deduction for your RRSP contributions in your higher income earning years. In addition to this you are receiving more years of tax sheltered growth on the entire amount while it is in your RRSP.

Please contact Stuart to answer your questions.