Q. Your RRSP Can Help To Buy A Home.
A. Almost half of the first-time buyers polled in a recent national survey used the RRSP Home Buyers’ Plan (HBP). Here’s a plain-language explanation of the basics.
How much you can withdraw. A qualifying home buyer can withdraw, tax-free, up to $25,000 from his or her RRSP. That’s $50,000 for a couple — $25,000 each.
Who can use it. You qualify only if you have not owned a home in the past five years (this stipulation is waived if the money is used to buy a more suitable home for a disabled person). The home must be intended for use as your principal residence.
Repayment. Repayments must be made annually over 15 years, beginning in the second year after the year of withdrawal. Missed repayments are taxed as income.
No quick withdrawals. You can access money only if it has been in the RRSP for at least 90 days. In other words, you can’t make a contribution, claim the tax deduction, and then immediately make a withdrawal under the HBP.
The unseen cost. While withdrawals are tax- and interest-free, it’s not free money. The cost is the RRSP growth sacrificed until the withdrawal is repaid. And because of the HBP repayments (which aren’t tax-deductible), you may find it difficult to make your full yearly tax-deductible contribution.
Professional advice can help you build a sensible and realistic plan to help you buy a home.
