It is very hard to save funds to purchase your first home. The Government of Canada has recognized this and has created the Home Buyers Plan. In this plan people with funds in their retirement savings plans (RRSP) or other retirement plans (Pooled registered pension plan (PRPP) or Specified pension plan (SPP)) can remove funds to be used as part or all of their down payment for their first home purchase.
GENERAL GUIDELINES OF THE HOME BUYERS PLAN:
With the federal government’s Home Buyers’ Plan (HBP), you can use up to $25,000 of your RRSP savings ($50,000 for a couple) to help finance your down payment on a home. To qualify, the RRSP funds you’re using must be on deposit for at least 90 days.
It’s worth mentioning that only you can make withdrawals from your RRSPs. Also, the home you purchase or build in Canada must become your primary residence before October 1st of the year following the RRSP withdrawal. Be careful if your project is a new construction as delays might jeopardize your strategy. The money you plan to use for the HBP has to have been deposited in the RRSP at least 90 days before making the withdrawal.
Repaying the amount you withdrew
Your repayment period starts the second year after the year you withdrew funds from your RRSP(s) for the HBP.
Generally, you have up to 15 years to repay to your RRSP(s), the amounts you withdrew from your RRSP(s), SPPs or PRPP under the HBP. However, you can repay the full amount into your RRSP(s), PRPP or SPP at any time.
Each year, the Canada Revenue Agency (CRA) will send you a Home Buyers’ Plan (HBP) statement of account, with your notice of assessment or notice of reassessment. The statement will include:
Repayments do not affect your RRSP deduction limit. You can still contribute to your RRSP(s) or PRPP and designate that amount as a repayment under the HBP, even if your RRSP deduction limit is zero.
If you do not make the annual repayment to your RRSP(s), PRPP or SPP, you have to include it as RRSP income on line 129 of your income tax and benefit return. The amount you include on line 129 is the minimum amount you have to repay as shown on your Home Buyers’ Plan (HBP) Statement of Account. Your HBP balance will be reduced accordingly.
SHOULD YOU TAKE ADVANTAGE OF THE HOME BUYERS PLAN?
It depends on many things, including:
We would encourage you to come in and talk to us at Next Step Financial Solutions. There is no easy answer but there is advice you can count on when making the largest purchase of your life!
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