Well, that’s the question isn’t it. If you have been hearing about the RRSP Home Buyers plan, introduced by the Canadian Federal Government years ago. What happens when you are interested in the Home Buyers Plan but don’t have an accountant to ask or down know where to go for more information?
Don’t worry, I’ll walk you through it!
Here’s how it works. The Home Buyers Plan (you may see it referred to as the HBP), is a fantastic program that allows you to withdraw funds from your Registered Retirement Savings Plans (otherwise known as RRSPs), to buy or build a home for yourself. I know what your thinking…’Wait, if I withdraw from my RRSP, I need to play that back ASAP!’
Here’s the genius of the Home Buyers Plan, when you withdraw funds from your RRSP, you are given a grave period of 15 years to pay back that cash.
‘Great, how much can I take out?’
The maximum amount that you can withdraw is capped at $35000
‘Wait, what if both my partner and myself are first time home buyers?’
Well, to be honest, you’re in a great position, both you and your partner are entitled to access $35,000 from your RRSPs, meaning you could potentially have access to $70,000 (to be paid back, of course), to put towards your new home purchase.
‘Great! Lets go!’
Well, hold up on that just a second, there’s some qualifiers you need to know before we run to the bank with withdrawal slips in your hands.
You must, must, must be considered a first time buyer. This program isn’t one for seasoned investors or those looking for their 5th home in 10 years. Its been put in place for first time home buyers to encourage them to enjoy home ownership without having to worry about the tax implications in doing so.
So how do you define a ‘first time home buyer’, what if my partner has purchased a home before?
Good question, one that probably requires a tax professional or lawyer to dig a bit deeper into.
You must have a written agreement (an agreement of purchase and sale) to buy, or build a home for yourself or your family.
So, now that you have your cash in hand and are ready to purchase you home, you may want to consider repayment options.
Since the Home Buyers Plan is a loan, you obviously have to pay that loan back over the following 15 years. As part of the program, you are given a two year grace period before you start to pay back the cash.
For example, let’s say you borrow $13,000 towards your first home, you then have 15 years, minus 2 years of grace period, to pay that back.
You generally must make yearly RRSP contributions of $1,000 to ensure that you are in compliance with the program. The RRSP repayment is due in the first 60 days of year 3.
You also have the option to not pay back into the RRSP and take the tax hit for doing so, but that is somewhat against the program, and who wants to pay more tax then they have too?
As I always say, don’t take my word for it, this is a general look at a very rewarding program for first time home buyers, but just like real estate, each and every situation has its own unique circumstances. Before running to the back to pull out $35,000, I would implore you to talk with an accountant or Real Estate layer to ensure that your situation is one that would benefit from this plan.
For more information on the RRSP Home buyers plan from the CRA, click here.
If you already have talked with those professionals and are looking to purchase your first home? I’d love to hear from you!